As you plan for your retirement, and try to save for retirement, we know your money is getting pulled in about 100 different directions. Competing needs can make setting aside your monthly “profit” a challenge. But here’s why you need to make it a priority.
Currently, the U.S. savings rate is 5.6%. That means for every $1,000 the average American worker makes, he or she is only saving $56. This savings rate is half of what it was 50 years ago. To put it bluntly, this paltry amount is not acceptable. There is little chance that a savings rate this low will allow you to have a secure and sustainable financial future and live the retirement life you want. In fact, at Simply Money Advisors, we recommend you save 20% of your take-home pay. The average worker has a long way to go. How do you compare?
But you may be thinking, “Why does it matter if I don't save a lot? I’ll have Social Security to rely on, and the market can help me make up for a lack of savings.”
First of all, Social Security is designed to replace about 40% of your income. If you haven’t saved much and have to rely mostly on Social Security once you retire, just think about your current lifestyle and salary – can you live on 40% of that? If you’re making $50,000 a year, could you live on $20,000 in retirement? And by 2034, if our politicians don’t make the needed changes to the Social Security program, across-the-board cuts will need to happen. This means your benefit would be even smaller.
And second, you shouldn’t rely on the stock market to bail you out. Sure, the average annualized return over the last 50 years for the S&P 500 (America’s 500 largest companies) is about 10%. But times are changing. The global economy is changing. At Simply Money Advisors, we believe it’s more realistic to expect a single-digit return for stocks in the future on average; 5%, 6%, maybe 7%. That’s a big difference. Besides, you have no control over what the stock market will do. Banking your future on overly optimistic expectations can be extremely dangerous.
The Simply Money Point
It’s time to get aggressive with your saving. And no, that doesn’t mean putting your money in risky investments or stocks and hoping to get an eye-popping return. It means you need to start aggressively socking away as much money as you possibly can every month – after all, that’s the only thing you truly have control over.
To find out if your saving habits have you on track for retirement, our team at Simply Money Advisors can help.