56% of American adults are concerned about lagging behind in their retirement savings, with many aiming for $1 million. Utilising benchmarks, online tools, and expert advice is crucial to bridging this gap and securing a financially stable retirement.
30% of American adult workers say they would need $1 million (€95,000) to retire comfortably, according to a new Bankrate survey.
However, brokerage firms such as Fidelity and T. Rowe provide benchmarks to help clarify the path to retirement.
Lazetta Rainey Braxton, financial planner and member of the CNBC Financial Advisor Council pointed to the "numerous calculators" available online to help investors gauge how much they might need, factoring in both ongoing lifestyle expenses and those that may increase in retirement, such as medical costs.
According to Brokerage firms such as Fidelity, the average retired couple aged 65 this year may need around $315,000 saved to cover healthcare expenses in retirement.
How much to save?
The benchmarks provide different age milestones and a target for how much to save.
For example, according to Fidelity's guide, you should aim to have twice your starting salary saved by the age of 35, and 10 times your starting salary by the age of 67.
However, many people are not meeting these benchmarks.
According to T Rowe, you should have one to 1.5 times your current annual salary saved by age 35, and anywhere from seven to 13.5 times your salary by age 65.
Even in the 55- to 64-year-old age group, the average and median balances are $207,874 and $71,168, respectively.
For example, some benchmarks suggest that you should have $1 million or more saved by age 65, Christine Benz, director of personal finance and retirement planning at Morningstar, told CNBC.
"But I do think specific information is better than no information," she said of benchmarks.
Generation Xers and baby boomers reported feeling more behind on their retirement than anyone else in the Bankrate survey, with 51% of Gen Xers and 40% of boomers thinking they are "significantly behind."
People are also living longer on average, which means many workers are now needing to finance what could be a 30-year retirement
Bankrate senior industry analyst Ted Rossman said a 4% withdrawal rate was a "safe bet."
If people believe they need between $1 million and $2 million to retire — as 13% said in the Bankrate survey — then a 4% withdrawal rate would equate to approximately $40,000 per year.
"It doesn't start to sound like quite as much and then it's like, 'Oh, wow, I might need more than $40,000 a year to live on,'" Rossman said. "So now that's why you're feeling behind."
How to catch up on retirement savings
If you are behind on your retirement savings, the first thing to do is to check your contribution rate to your employer-sponsored retirement plan. If you are only contributing up to your employer's match (which is usually between 5% and 6%), you may be able to increase your contribution rate to reach the annual maximum.
The 2023 annual maximum for 401(k) contributions is $22,500. If you are 50 or older, you are eligible to contribute an additional $7,500.
Even if you don't have much time left before retirement, it is important to start saving or increasing your contributions as soon as possible. For younger workers, it is especially important to start investing early and increase their contributions regularly.
The earlier you start saving, the more time your money has to grow. For example, if you start saving at age 20 or 30 and your money grows at a 10% annual rate, your money could double five times in 35 years. That makes a big difference.