Today’s workers have their work cut out for them when it comes to preparing for retirement.
Pensions are a thing of the past at most companies, and Social Security benefits are only intended to replace around 40% of your pre-retirement income. That means a significant chunk of your money in retirement will need to come from your personal savings.
However, more than half of Americans have less than $50,000 saved for retirement, a report from the Employee Benefit Research Institute found. Furthermore, of that group, more than one-quarter have less than $1,000 stashed away.
It’s no surprise, then, that many workers are pessimistic about their financial futures. In fact, approximately 29% of baby boomers and 36% of Generation Xers believe they’ll never be able to afford to retire, according to a report from the National Association of Personal Financial Advisors.
If your financial situation looks bleak and you’re worried you can’t afford retirement, all hope is not lost. By taking action now, there are a few ways you can give yourself a better shot at affording a comfortable retirement lifestyle.
Stay optimistic (but realistic) in achieving your goals
There’s no sugarcoating it — preparing for retirement won’t be easy if you’re significantly behind on your savings. That said, the only way to guarantee you won’t reach your goals is if you give up now and don’t make any moves to save more.
The first step to getting your finances back on track is to set a savings goal for yourself. Run your numbers through a retirement calculator to get an idea of how much you should aim to save by retirement age, as well as what you need to save each month to reach that target. Prepare yourself for some sticker shock here, because if you’re seriously behind on saving, you may find that you’ll need to start socking away thousands of dollars per month to bolster your retirement fund.
Once you have that goal in mind, seriously consider whether it’s achievable. If you’re willing to make significant cuts in your budget to save more, that’s a great start. But if your monthly saving target is simply out of reach no matter how many financial sacrifices you make, you may need to resort to Plan B: adjusting your retirement expectations.
What to do if you can’t save as much as you need to retire
If you can’t afford to reach your original savings goal, you may need to rethink your retirement plans. That could involve delaying retirement by a few years to give yourself more time to save, for example, or tweaking your retirement budget so you can afford to live on less in your senior years. You may even consider taking drastic measures, like moving to a more affordable area in retirement to lower your general living expenses.
Another option is to delay claiming Social Security benefits. By waiting to claim until after your full retirement age (FRA), you’ll receive extra money each month on top of your full benefit amount. For example, if you have an FRA of 67 years old and wait until age 70 to file for benefits, you’ll receive a 24% bonus in addition to your full benefit amount. And because your benefit amount is permanent (save for yearly cost-of-living adjustments), that means you’ll receive those bigger checks for life. If you know you won’t be able to save a significant amount for retirement, that extra money can make a big difference.
Regardless of what route you choose to take, make sure you have some type of savings plan in place. The sooner you create this plan and start working to achieve your new (or adjusted) goals, the more likely you are to be as prepared as possible for retirement.