Good news for people worried about retirement – The Fool Motley

If you want to save enough money for retirement, you are not alone. According to a survey by Northwestern Mutual, one in five Americans has no savings for retirement, and one-third of baby boomers have $ 25,000 or less hidden.

But while most of the news about workers' retirement savings looks gloomy, there is a bright side to those worried about their financial futures.

According to the Employee Retirement Research Institute (EBRI) annual survey on retirement confidence, only 67% of workers have at least some confidence that they will have enough money. savings for living until retirement.

This may not seem so promising, but 82% of those already retired say they believe their savings will allow them to live comfortably for the rest of their lives. In addition, eight in ten retirees expressed confidence that they would have enough savings to cover potential medical expenses, which is one of the most important areas of spending you may have in retirement.

In other words, even if the future looks bleak right now, it could improve once you've retired.

Why are retirees so optimistic about the future?

At first, these findings may seem the opposite of what you expected. After all, if you are concerned about your lack of savings before retirement, it is hard to believe that you will feel more comfortable financially once you quit your job.

But if you adjust your retirement lifestyle to your savings, you may feel more financially stable, even if your savings are not exactly what you want. Retirement can also be a good opportunity to reduce and live within your means. You may think now that you need, say, $ 50,000 a year to survive, but if you only have $ 30,000 a year for retirement, you'll learn how to deal with it.

In addition, some retirees naturally spend less than at work. Travel expenses, expensive office lunches and dry cleaning of your work clothes can be added up so you can save money once you retire. Of course, if you decide to travel the world or if you have new expensive hobbies, your expenses could skyrocket. But if you spend most of your time tinkering at home, babysitting or volunteering in your community, you may actually be spending less than you plan on retiring.

Do not forget that unforeseen health needs may still appear, so you need to make sure you plan for future medical expenses.

Keep in mind however that this does not mean that you have a free pass to stop saving. If you're having trouble with below-average savings right now, that does not mean you're destined for a miserable retirement. However, it is always important to save as much as possible so that you can take the best retirement that is, comfortably.

Increase your savings later in the game

If you are a few years away from retirement and your savings are scarce, do not lose hope – there is still time to grow your retirement fund, and every little bit counts.

For example, suppose you are 50 years old, you save $ 20,000 in anticipation of your retirement, and you contribute $ 150 a month to your retirement fund, which equals a 7% annual rate of return on your investments. . If you continue to save at this rate, you will save close to $ 120,000 at age 67.

Then use the 4% rule to see how much of that savings you could withdraw each year. The 4% rule states, in summary, that you can safely withdraw 4% of your total savings in the first year of your retirement, and then adjust that number each year to account for inflation. So in this case, you can withdraw about $ 4,800 in the first year of retirement, or $ 400 a month.

You will not live many things, but you will also benefit from Social Security benefits to cushion your personal savings. The average social security check rises to about $ 1,300 per month, which can help bridge the gap between what you have and what you need – but it's a good idea to To avoid relying on your benefits for a significant do not want to be left out in the event that your benefits would be reduced.

Is it possible to earn $ 400 a month in addition to Social Security benefits? Perhaps, depending on your lifestyle, where you live, your health care needs, and your willingness to make sacrifices in retirement. If you have not saved much and you do not have much time left to contribute to your retirement fund, you may have to settle for what you have and learn to live with less. But if you still have a few years to spare, finding ways to save a little more each month will ensure you a more comfortable retirement.

For example, if you used the previous scenario, suppose you save $ 300 a month instead of $ 150 a month, and you delay retirement until age 70 instead of retiring at age 67. % of return, you would have about $ 225,000 in 70 years. By applying the 4% rule, you can safely withdraw $ 9,000 a year, or $ 750 a month, without running out of money.

In other words, even if you can get away with it, making sacrifices in the years before retirement can make it a more comfortable and enjoyable retirement. And while the majority of retirees say they have saved enough the rest of their lives, there is no harm in being cautious in maximizing your bottom.