New survey shows Americans are getting more serious about retirement savings
Bankrate.com recently released findings from a new study on retirement savings habits of Americans. The study found that Americans increased their retirement savings in 2016, but according to the experts, they need to do much better.
The findings reveal that 21% of employed Americans are saving for retirement, which is the highest percentage in five years. In 2011, when the economy was more challenging, many Americans cut back on their savings, including for retirement. Today only 17% reported that they had reduced the amount of money they are saving. This could be because Americans have more money to save. According to the Bureau of Labor Statistics, average hourly wages rose by 2.6% in July.
All of this is good news, but are you saving enough for your retirement?
According to Greg McBride, chief financial analyst at Bankrate.com, Americans are saving way below what they need for retirement, or even to cover emergencies. He says the situation has been decades in the making, as Americans found their salaries failing to keep up with expenses. When money is tight, savings is the first thing to go out the window, especially for retirement which seems so far away in many cases. The survey results were even more alarming among millennials who reported that they are putting less aside for retirement.
How much is enough?
According to analysts at Fidelity, if you are 65 years old you are looking at spending as much as $130,000 just on medical expenses during your retirement years. This includes premiums and out-of-pocket expenses. A woman will spend more, because she has a longer life expectancy. This amount does not include long-term care expenses, such as nursing homes or home assistance, all of which is not covered by Medicare. A long-term care insurance plan costs approximately $130,000. This means that, on average, you need to save $260,000 just for your health care during your retirement years. Now factor in all your other expenses: housing (unless you own your home); recurring bills; groceries; loans and other debt; and social expenses. If you are still years away from retirement you need to save even more for healthcare. Fidelity analysts say that medical expenses are expected to increase between 4%-6% per year.
What to do if you are near retirement age and you did not save
If you are close to retirement age and have saved almost nothing because your income barely covered your expenses, then you have a more challenging situation. While it is impossible to make up for all the lost years of savings, the future is not hopeless.
- Begin saving as much as possible.
- Continue to work longer, if you can. Retirement does not have to be defined by age. If you are healthy, push your retirement off a few more years in order to build up your retirement savings. If staying on in your current position is not an option, or you have been waiting to escape from the place, search around now for freelance work that you can do while you are still employed.
- Delay social security. The longer you wait, the larger will be your retirement check.
- If you own your home or have substantial equity built up in your home, consider downsizing. Consult with an agent and see if the market is favorable to sellers. If so, sell your home and find something smaller. Place the difference between what you earn from the sale and what you spend to purchase your new home in a savings account.
- If more than 50% of your income is going to pay off debt—credit cards, loans, medical bills, etc. it might be wise to seek debt relief, such as a debt consolidation loan or even bankruptcy. Such drastic steps are worth it to be in a position to save for your upcoming retirement.