Your age has a bearing on retirement confidence
How much money do you need to save for retirement? Your age, obviously, has an enormous bearing on your answer.
How much money do you need to save for retirement? Your age, obviously, has an enormous bearing on your answer.
If you're a baby boomer, you likely believe you need $1 million in savings to retire comfortably; if you're a millennial, your estimate is closer to $2 million, according to an August survey by the Transamerica Center for Retirement Studies.
Harris Poll conducted the survey for the center among 4,550 full- and part-time U.S. workers age 18 or older at for-profit companies of 10 or more employees.
Why the difference in the responses? The trauma of the 2008 financial crisis appears to have affected millennials more than members of previous generations.
The Transamerica survey found that many American workers have not yet recovered financially from the Great Recession: Forty percent say they have "somewhat" recovered; 15 percent have not yet begun to recover; and 8 percent say they may never recover.
Workers across all generations said they believe they need to save at least $1 million (the median estimate) to feel financially secure when they retire. But millennials (33 percent) are more likely than Generation X (30 percent) or boomers (27 percent) to believe they will need to save $2 million or more.
Few have saved that amount, by the way. Average U.S. household retirement savings increased to $63,000 (the estimated median) in 2015 from $49,000 (estimated median) in its 2011 survey, according to Transamerica.
Generation gaps
The big surprise? The recession prompted millennials (in the survey, those born in from 1979 to 1996) to hunker down and save scrupulously for retirement.
Retirement confidence is highest among millennials (63 percent) and baby boomers (61 percent) and notably lower among Gen X workers (54 percent), the survey revealed.
Not surprisingly, America's younger generations don't believe the U.S. government social safety net will provide for them in their retirement. Generation X (85 percent) and millennials (83 percent) are more likely than baby boomers (65 percent) to be concerned that Social Security will not be funded for them when they retire.
Millennials (48 percent) and Generation X (40 percent) most frequently cite 401(k)s, 403(b)s or IRAs as their expected primary source of retirement income, while baby boomers (35 percent) most frequently cite Social Security.
Though boomers cite saving for retirement as their greatest financial priority, millennials' top priority is "just getting by - covering basic living expenses."
And yet millennials started saving for retirement at a younger age (median age 23) compared with Generation X (median age 28) and baby boomers (median age 34).
Still, there's little science behind how Americans arrive at their retirement estimates. They believe they must save millions to retire, but how did they arrive at that number?
Slightly more guessed in the 2015 survey (53 percent) than in 2011 (50 percent).
What we can do
A recent book maintains that Americans can shore up their retirement savings fairly easily. Falling Short: The Coming Retirement Crisis and What To Do About It (Oxford, 2014) suggests that the retirement shortfall could be solved for many individuals by working until age 70 and claiming the maximum monthly benefit from Social Security.
Its analysis, using the National Retirement Risk Index, found that more than 85 percent of working-age households would be financially prepared if they stayed on the job until age 70.
Authors Charles Ellis, Alicia Munnell, and Andrew Eschtruth found that the average retirement period will lengthen from 13 years in the 1960s to 22 years by 2050.
Things aren't as bleak on the savings front, however, based on their estimates.
In 2013, median household retirement savings totaled $111,000, according to the book, which cites the Federal Reserve's Survey of Consumer Finances. If a retired couple consumes 4 percent of $111,000 each year, they receive less than $400 a month, adjusted for inflation. Social Security would supplement that income.
"The fact is that half the U.S. workforce appears at risk of not maintaining their standard of living in retirement. We started doing this research several years ago, and those numbers have stayed consistent," said Eschtruth, who works with Munnell, director of Boston College's Center for Retirement Research.
What else can we do? Claim Social Security as late as possible (age 70) to maximize benefits. Falling Short notes that claiming Social Security at age 62 reaps just $1,000 a month. At 70, that monthly benefit is $1,760 a month.
Leave your money in your plan, too, and avoid early withdrawals or taking out loans. The "Rule of 72" is helpful in estimating how long it takes your investment savings to double over time.
Assume $100 in invested savings yields a 6 percent return. Under the Rule of 72, that should double in 12 years (72 divided by 6) and compound over time. The $100 you invested at age 30 totals $1,600 by age 78.
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