Saving for retirement is a lot like dieting. We all know what we should be doing, but actually doing it is hard. It’s much easier to make excuses.
We’re busy. We have responsibilities — to children, to older parents — that compete with our ability to set aside money for our later years. What’s more, wages have stagnated in recent years while the cost of living has continued to climb.
The numbers bear out the challenge: More than half of workers report they have less than $25,000 in total household savings and investments, excluding their home and any pension plans, according to the 2014 Retirement Confidence Survey by the Employee Benefit Research Institute. To be sure, not all of those surveyed had access to retirement plans, and some had incomes low enough to make saving difficult.
Yet there are plenty of people who make enough to save but don’t make saving a priority. “It’s the American way to spend 100% of what we bring in,” said Sheryl Garrett, founder of the Garrett Planning Network, a network of fee-only financial advisers. David Nethery, senior vice president at Merrill Lynch Wealth Management in Dallas, makes sure his clients understand that they’re the ones responsible for their own retirement: “If you spend money on toys upfront, you’re not going to have as good a time later on,” he tells them.
Forget about cruises — just funding medical expenses will be hard for those without adequate savings. A couple retiring at age 65 today is expected to incur $220,000 in health care costs, during their retirement years, according to Fidelity’s 2014 Retiree Health Care Cost Estimate, released on Thursday. That figure includes monthly premium payments for Medicare Parts B and D, plus prescription drug out-of-pocket costs and Medicare cost sharing requirements. (Many procedures and doctors visits require Medicare beneficiaries to pay 20% of the cost.) And the figure doesn’t even include the cost of nursing homes and other long-term care services, which Medicare doesn’t cover.
That the Fidelity estimate is unchanged from 2013 probably comes as cold comfort — any way you cut it, $220,000 is still a huge number. And since it’s an average, some people will need more than that. For one, Fidelity’s calculations assume both members of the couple are dead by age 85, and many people live longer than that.
For those who have reached midlife without much savings, getting started can seem daunting. It doesn’t help that the financial services industry usually focuses on dollar goals, with $1 million as the bare minimum for a retirement nest egg. It’s easy to think that we’ll never amass such a sum, so why bother even trying?
The good news is that we don’t have to get there all at once. Just like with a big weight-loss goal, it’s fine (even preferable) to begin gradually. “Give yourself some breathing room and compassion,” Garrett said. “It’s not like flipping a light switch. But you do have to begin.”
We talked to Garrett and other experts about four simple ways to get started.