You know you need to do it. You know it really matters. But what are the best retirement savings strategies out there? What works, and why?
PNC, the bank, recently asked more than a thousand folks with at least $100,000 in investable assets about their saving habits. One of the key questions was: “What is the most important retirement-related decision made in life?”
Think about the survey-taker: Having $100,000 in investable assets puts you pretty high up on the retirement savings strategies ladder. These are people worth listening to, right?
Here are the top three retirement savings strategies answers, from the survey. They were:
- Living with my means (47%)
- Putting as much money as I can into my 401k, 403b, or comparable retirement plan (38%)
- Starting to save at an early age (35%)
Now let’s break that down, step-by-step. Living within your means sounds easy, but consider the facts. To do it, you have to consistently spend less than you make. No credit cards.
Nevertheless, the U.S. personal savings rate is dismal. We haven’t saved 10% of our earnings, collectively, since 1985, according to government statistics. In October 2001 the number fell under 1%. (It’s around 4% now.)
How do we measure up on this most basic of retirement savings strategies? People in many other countries save double, triple, and more. In part, it’s because foreigners often lack access to credit, but it’s also simply because Americans spend with abandon, always certain that times will get better.
How about the retirement plan part? According to Fidelity Investments, the average saver at work is putting away about 8% of income as deferrals, reaching $5,750 a year in 2011. That’s from a study of 11 million people in Fidelity plans. Employer matches kicked in another $3,270.
So, if you want to be “average” about it, around $9,000 in total deferrals is your target, including free employer money. Of course, this leads up to the No. 3 retirement savings strategies idea: Start early.
Retirement savings strategies depend on you
It’s really true: time is money. If you save $5,000 a year starting at 35 and earn 6% compounding twice a year until age 65, you enter retirement with $419,862.
If you wait to age 45 to start, you have to more than double the savings amount to $11,000 to get the same result. If you wait to 55, well, make that savings figure $30,000 a year, every year, to reach the same mark. Having just 10 years to save also greatly increases your exposure to unrecoverable market crashes. Waiting to save is the definition of risk.
Of course, the final, unspoken king of retirement savings strategies is putting your money to work for you, instead of you working for money. Building a solid, repeatable, simple retirement plan is the key to building wealth that will last you well into your golden years.