More than 75% of Americans nearing retirement have less than $30,000 in their retirement accounts, according to the New School’s economic policy center.
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And with the median balance at $0, more than half of of the age group (ages 50-64) have no retirement savings whatsoever.
Those who have little to no savings will rely on Social Security, which on average pays out about 40% of pre-retirement income, the Department of Labor writes.
According to an article by Teresa Ghilarducci, a professor at the New School, the lack of savings will be especially bad for middle-class workers, almost half of which will be living near poverty with a $5 daily budget for food.
Forbes Magazine has called the situation “the greatest retirement crisis in American history.”
So what can you do about it? Here’s what experts are saying.
Starting at 25, you should be saving about 7% of your income, investing it in funds that earn at least 3% over the rate of inflation (currently 1.8%) annually, Professor Ghilarducci writes.
An article at the financial information provider Bankrate gives another example: starting at 25, if you save $2,000 annually in a fund with an 8% interest rate, you will end up with $560,000 at retirement due to compound interest.
What can I do?
As both examples above state, it’s extremely advantageous to start early. While saving $2,000 a year might be unrealistic for many people at that age, even putting away $100 at a modest 6% return rate will increase the investment tenfold to $1,000 at 65 (calculated with the investor.gov compound interest calculator).
As your income increases, you can invest more. But even if you don’t increase your investment to more than $100 a year (or $8.3 a month), you still stand to have made $180,000, which is more than 87.5% of Americans near retirement have, as the New School report states. Numbers calculated by the investor.gov calculator.
It’s all about forming a habit of saving, TIME Magazine states in their comprehensive guide to retirement saving.
Having a goal is also good, the Department of Labor states, suggesting that you need to earn 70% of your pre-retirement income – or 90% if your income is low – to maintain your standard of living.
The American Association of Retired Persons have a calculator on their website that you can use to set a goal for yourself.
Of course, with the ever-increasing income inequality gap, this is all easier said than done for many people.