Middle-income Americans entering retirement now will have to reduce their standard of living by an average of 24 percent to minimize their chances of outliving their financial assets, the study found. Workers seven years from retirement will have to cut their spending by even more — 37 percent.
This is one more study pointing out how many people are failing to take the most basic steps to manage their finances. Saving for Retirement is not very complicated. The details can get a bit complex but some of it is really basic like saving at least 5-15% of your earnings each year (or more if you fall behind) in tax differed savings accounts (IRA, 401(k)…). Many people just choose to sacrifice their future to buy more toys today.
There are different strategies but the minimum you should be doing (in the USA where social security will provide a portion of retirement savings) is saving, in a 401k, IRA or something similar: 5% in your 20s, 8% in 30s, 10% in your 40s, 11% in your 50s, 12% in your 60s. If you save more earlier you may be able to save less later. And if you fall behind you will have to save more. To retire earlier, than say 68 (today, or say 70 by 2020, and if you assume life expectancy rates will continue to increase you need to plan on working longer or saving more for a longer retirement), you should save more.
As you reach 50-55 you will start to be able get some decent idea of where you stand, how well have your investments done over time, what are your expectations for retirement standard of living, how do health care costs look, what are costs for long term assisted care, when do you hope to retire… If you don’t have large amounts saved up by then you are in a serious bind and have to make hard choices about continuing to sacrifice your future or making serious sacrifices today to try and make up for the failures to do what was required earlier in life.
The most important thing is to start saving early and don’t stop and don’t withdraw any early. If you can’t afford to put in as much as you should then put in what you can, and increase it as soon as you can. Failing to take advantage of long term investment gains (compounding interest) makes a financially successful retirement very difficult.
Related: Nearly half of all workers saving for retirement have savings that fall short of the $25,000 mark. – Boomers Face Retirement – Gen X Retirement – Starting Retirement Account Allocations for Someone Under 40