So you’ve started saving for retirement. Great!
But do you know exactly how much you should be socking away so you’ll have sufficient funds after you stop working?
If you’re like many Americans, the answer is probably not. According to new research from the Transamerica Center for Retirement Studies, only 11% of people have actually tried to figure out how much money they’ll need in their golden years, using a retirement calculator or a worksheet. About a quarter of people say they estimate their retirement needs based on their current living expenses.
But as many as half of respondents admitted they just guess how much they’ll need. Even among Boomers, the oldest generation surveyed, a whopping 48% said they’ve guessed at their retirement needs. Overall, survey subjects estimated they’d need a median of $1 million in retirement.
When it comes to saving for their futures, Americans are unprepared in other ways, too. The survey found that, while 61% of workers have a retirement strategy, just 14% have that strategy written down. And less than a quarter of employees have a backup plan if they end up having to retire earlier than expected.
The good news is that about 8 in 10 workers surveyed are currently saving for retirement either through employer-sponsored plans or outside the workplace. And the majority of people are realistic about having to self-fund through savings, investments and retirement accounts.
When asked what would motivate them to learn more about saving for retirement, many people said the topic should be easier to understand, with 63% saying they wish their employers offered more advice and information.
So is that $1 million estimate accurate? It depends. One way to figure out how much to save is to use a retirement calculator. You can also use the 85% replacement ratio, which means you’ll need to replace about 85% of your current pre-tax income in retirement. The least productive option when planning for your future financial needs? Just winging it.