Behind on Your Savings? (That Would Be Most of Us)

retired couple walking on beach

Let’s say that you’re one of the 86 percent of Americans who say they haven’t saved enough for their retirement.

A) You can promise yourself that now, finally, you’re ready to get your ducks in order. Buckle down. Get serious. Buy Barrons. Every. Day.

Or B) You do something simple that will move you out of that 86 percent, right now.

Since you’re still reading, we’ll assume you picked strategy B. Great. All that’s required is for you to ditch the all-or-nothing approach to retirement planning—the “I’m going to master it all now” strategy that never seems to happen—in favor of…moderation.

Modest goals. Less is more. Really.

Many women begin to right their financial ship the moment they decide to go moderate, experts say. Because they realize they can grab some control, and after that, a little more…and even a little more.

How can you do that today? You could:

Follow the 1 percent rule. All that means is pledging to save 1 percent more of your income than you did last year. Watch:

Let’s say that this past year you saved 4 percent of your $100,000 salary. You’re 40 years old, with $30,000 in retirement savings. At that rate, you’ll have $297,120 saved by the time you’re 65.

But if you save 5 percent of your income next year and every year after that, you’ll retire with $359,034.

And if you save 1 percent more each year after that, until you’re socking away 16 percent a year, you’ll end up with $890,772.

Curious about what your personal future could look like? Play around with the 1 percent calculator for two minutes.

Decide to work a few years longer. No, not until you’re 96. How about 70? How about part-time?

First, you’d have plenty of company. The average American anticipates retiring at age 67. (In the mid-1990s, most people expected to retire at 60!) And studies show that many people are working longer.

Is it a drag? Maybe not. First, we’re all living longer—and women live longer than men. Bringing in a paycheck for a few extra years would help you out a great deal, says Michael Garry, of Yardley Wealth Management in Newtown, Pennsylvania.

Say you were turning 65 now and had saved $500,000. You follow the recommendation to withdraw only 4.5 percent of your retirement savings a year for living expenses ($22,500), and it’s supplemented by your Social Security pension of $21,804, giving you a total of $44,304 to live on the first year. The amounts would rise with inflation each subsequent year—but it’s nowhere near enough.

So what if you decide to work until age 70, socking away the maximum $22,500 into your 401k each year (you can save more when you’re over 50)? After all, 30 percent of Americans are now looking at 80 as the new 65, a Wells Fargo study found. 

In those five years, assuming your retirement funds earned 6.27 percent a year, your nest egg would have grown to an impressive $804,734, allowing you to withdraw 5 percent a year, or $40,237.

Combine that $40,237 with the larger Social Security payment of $32,976 you would get by waiting, you’d now have far more to live on per year: $73,213.

Thanks to working those five extra years, you’d likely have $29,000 more annually for the rest of your life, explains Garry.

What if you experience health problems or a disability? It’s not impossible. But that doesn’t mean you should rule out working longer to fund a longer life. Most people who save for 30 or 40 working years still can’t cover 20 to 30 years in retirement, says Alicia Munnell of the Center for Retirement Research at Boston College, who was interviewed here.

Last, learn a little more. Retirement is like dental surgery: Most people put off thinking about it until the pain (or panic) becomes pretty uncomfortable. But why take the stressful road? At some point, you’ll stop working; if you want it to be fun, you need to finance it.

Use a good calculator to run some numbers. Read inspiring articles about what the future might hold. Talk to friends and family about their goals. In other words, take small steps that move you forward.