Even if you’re a proud business owner and you love what you do, chances are you look forward to retirement. For many, retirement means traveling the country, taking a well-deserved overseas trip with the grandkids, or simply having the time to sit down with a book that’s been on the reading list for years.
Some look forward to it so much, they set aggressive financial goals and work long hours, with the intention of retiring early. Others aren’t so regimented, sticking to the typical retirement savings percentages and shooting for retirement around age 63, the average retirement age in the U.S.
Some fall the other way, either underestimating the amount of savings they’ll need to retire or failing to save for other reasons. Regardless of those reasons, the result is black and white: not enough savings to retire at age 63 and, perhaps, not even enough to retire at all. Ever.
The harsh reality of retirement savings in the U.S.
QuickBooks Payroll recently conducted a survey to better understand how people spend their paychecks. They asked 1,000 working adults about their financial position and retirement plans.
Here’s what they found:
- Only 1 in 5 survey respondents (18 percent) felt they were saving enough money for retirement.
- When asked how long they could live on savings if they lost their job, 23 percent said they didn’t have any savings at all.
- Another 26 percent said they’d run out of money in less than a month.
- Finally, upon receiving their paycheck, only 16 percent said they put money aside for the future.
A 2017 Washington Post article, titled “The New Reality of Old Age in America,” paints a more personal story with these stats, with elderly couples Joanne and Mark Molnar and Jeannie and Richard Denver. They’re just two examples of retirement-age couples living from paycheck to paycheck, long after most people hope to be finished with work.
Like most folks over the age of 65, the Denvers receive Social Security, but that’s just $22,000 a year—not nearly enough to live on without other earnings on the side. Thus, the couple has adopted a nomadic lifestyle, going from campground to campground, doing odd seasonal jobs in exchange for low wages and a place to park their 33-foot RV. According to the Washington Post, 9 million senior citizens work today, compared to 4 million in 2000.
Can the next generation close the gap?
The sad part for the Denvers, the Molnars, and millions like them is time has run out for creating a fruitful retirement savings strategy. It’s a little cliché but true: You’re never too young to start saving for retirement.
For some young people, saving for retirement might seem daunting or impossible, simply because there’s so much to think about. Does it cost money to talk to an advisor? Is there a minimum amount of savings required to get started? With so many types of accounts out there, which is the best one for you?
“There’s no minimum [to invest],” says Kymberli Grime, CPA and owner of KG Services, PLLC. It’s the opposite. “There are maximums for certain investing vehicles within a year,” she explains. “Starting is the biggest hurdle. Once somebody starts and sets it up on an autopay-type system, it’s out of mind. If they can budget their money to put just $100, $200, or even $50 a month aside, that’s huge, especially young in life. That compounds into a beautiful nest egg by the time they get to retirement age, depending on how the money has been invested.”
Grime says one of the toughest challenges is getting into the habit of not increasing one’s spending every time earnings go up.
“What we see is kind of a treadmill reaction,” she says. “People spend what they have, and then they get a raise and they spend what they have. Unless somebody makes the commitment to set some of their earnings aside, I find that a lot of people end up inflating their budget to match what they make.”
Options for young savers
If you are able to set some money aside, it might help to know that retirement savings don’t have to start with a matching company 401(k) or a Roth IRA. Young savers can put a portion of their birthday money or weekly allowance into an Education Savings Account (ESA) or something like a simple savings account to learn the basics of banking.
As children become old enough to work and earn an income of their own through babysitting or a part-time job, they can contribute to a kid-friendly IRA, such as the type described in this Time Money piece. Essentially, parents are able to open an account and either gift money into it or match the child’s earned income to motivate them to save.
Grime says parents can also help their children by putting money aside in a 529 plan, specifically designed for college savings. “It’s basically a state savings plan,” she says. “Parents can set aside money that’s for the benefit of the child, and if for some reason your children don’t use it [for college], it reverts back to you.” The rules vary from state to state, but most allow parents to have the funds for their 529 plan drawn from their earnings tax-free.
Next steps: who are you going to call?
As with any goal, it’s helpful to have an accountability partner who can keep you on track for success. In the case of retirement savings, that might be your accountant, a financial-savvy friend or family member, or a financial advisor.
Wherever you go for your retirement savings advice, the key is to seek knowledge in the first place. Do that, and you’ll be ahead of the curve.