The Ugly Truth About Retirement Savings Shortfalls
A new study notes the U.S. retirement savings shortfall is worse than even the most pessimistic onlookers may think.
The upshot is that Americans will be getting less out of their 401(k)s and IRAs than they think. A lot less.
The
study by the National Institute on Retirement Security, using data from
the U.S. Federal Reserve, shows that retirement savings "are
dangerously low" and that the U.S. retirement savings deficit is between
$6.8 and $14 trillion.
Worse,
the median retirement account balance is $3,000 for all working-age
households and $12,000 for near-retirement households, the study
reports.
What, exactly is going on with Americans and poor retirement savings habits? More importantly, what can be done -- finally -- to solve the problem of barebones bank accounts in retirement?
"If
Americans continue to ignore their future, I anticipate a serious
retirement train wreck in 20 to 30 years," says John Brandy, founder of
Open Mind Generations, in Redmond, Washington.
The
typical savings rate for most people is somewhere around 1 to 3 percent
of their annual income, and that's nowhere near enough to turn the tide
on low retirement savings. However, history suggests that if we save
roughly 10 percent of our incomes, we're likely to achieve many of our
goals," Brandy says. "And, if we save 20 percent from gross income
before health insurance and taxes, that we are likely to able to achieve
most, if not all, of our financial goals."
Brandy
says part of the problem is steeped deep in American culture -- and not
in a good way. "It seems to be a cultural difference, as many of my
customers are from Southeast Asia and they are already conditioned to
save more like 30 to 50 percent of their income," he says. "My customers
from Europe, Canada and the U.S., so-called westerners, tend to
demonstrate that savings shortfall problem far more often."
To get back on track to more robust retirement savings, investment gurus advise focusing on what you can control, and avoid the things you can't.
"If
you're overwhelmed by how much money you should have before retiring,
start with your expenses," says Kevin Ward, president of Park + Elm
Investment Advisors in Indianapolis. "Focus on the expenses you can
control. Naturally, the less money you spend on an annual basis, the
less money you'll need to retire."
It's
not a matter of luck, as your expenses determine if you can truly
afford retirement, Ward says. "Sure, we don't know exactly how much
we'll spend on an annual basis in the future, but most of us can reduce
several major expenses like housing, transportation and food, if we
truly tried," he says.
One
strategy Ward touts is to aim for a "basic expense target" in
retirement that can be calculated based on your individual needs.
"Simply multiply your current gross pay by 80 percent," he says. "This
is a reliable factor for retirement spending, even though it's not
necessarily perfect. But a comfortable retirement can be expected at
this spending rate."
If you don't start accelerating your long-term savings and investment plan, you're going to have to dial down your retirement expectations in retirement, experts say.
"Most
people have not saved enough," says Robert Riordan, a certified public
accountant in Columbia, South Carolina. "But they don't realize they're
going to have to reduce their standard of living by about 50 percent in
retirement, and they're going have to reduce their expenses down because
they're going to be on a budget in retirement."
Factor
in additional needs like health care and a six-month rainy-day fund,
and Americans who have not saved enough for retirement, for whatever
reason, are in for a serious reality check, Riordan says.
If you're in the position of not having nearly enough saved for retirement,
the one sure first step you can take is to talk to a financial advisor
who can create a savings blueprint -- with accountability -- that can
get you going in the right direction.
"The
key is to plan responsibly using a properly qualified financial planner
or advisor," says Rob Drury, executive director at the Texas-based
Association of Christian Financial Advisors. "Most advisors will perform
basic planning functions at little or no cost.
Culled from Yahoo finance in US news
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