Small Changes Lead to Big Rewards for Retirement
If your retirement savings took a hit during the 2008-2009 recession, you may just be wondering how long it will take you to catch up to where you were. Or at the least, you may want to know what you can do to speed up your own retirement recovery. A report released in January 2011 by the Employee Benefits Research Institute attempts to answer those questions.
According to the report, somewhere in the range of 4-14% of American households are now more at risk of running out of money in retirement, due to the recession. While that doesn’t sound like too bad of an impact, it helps to look at overall numbers to see where we really stand, and the study includes that information. For instance, about 47% of all Early Boomers (folks age 56 to 62) are at risk of running out of money. About 43% of Late Boomers (folks age 46 to 55) face the same fate, and about 45% of Generation Xers (now age 36 to 45). In general, then, it’s safe to say that almost half of all Americans now face the very real risk of running out of money in retirement.
The report also breaks out the retirement “bankruptcy” risk by income levels. As you might expect, lower-income individuals are at higher risk than middle-income individuals, who in turn are at higher risk than high-income individuals. That pattern holds true across age groups as well (Early Boomers, Late Boomers, Gen Exers).
But there’s good news in the study too, and that is that you can do something to increase your odds of having enough money to last throughout your retirement years. For instance, consider Early Boomers who might want to increase their odds of retirement success to 50/50. To reach those odds, Early Boomers would need to save an additional 3% per year until they retire. Late Boomers would need to add only .9% and Gen Exers .3%, since they have more time until they retire. But who wants only a 50/50 chance of making it through retirement?
The report also indicates that for a 90% chance of success in retirement for Early Boomers for example, savings would need to increase to 4.3% per year until retirement. Now I’d say that for a big jump in the odds, going from 3% to 4.3% in savings is way worth the extra effort. The actual percentages vary for each age group depending on individual circumstances (age, income level, home ownership, IRA ownership, etc.).
But the overall message is pretty clear: Americans still have a ways to go to ensure a “safe” retirement where households don’t run out of money. Remember about half of us are at risk right now if we don’t change anything. But the good news is that even fairly small changes in our savings habits can produce significant results. As we’re still near the beginning of the year, take a look at how much you’re saving for retirement this year. Can you squeeze out another 2-3% or more, without cramping your lifestyle too much now? If so, you’ll increase the odds you’ll enjoy your retirement years and maximizing your retirement readiness, freer from the worries of running out of money in retirement. The choice is yours—now.