How many Americans aged 30-54 believe they will not have enough money put away for retirement? According to the U.S. Census Bureau (retrieved from Statistic Brain Research Institute), as many as 80%.
How many Americans don’t save anything for retirement? The U.S. Census Bureau estimates 38%.
How many Americans who started working at the age of 25, have adequate capital stowed away for retirement by age 65? The correct answer is 4%, again according to the U.S. Census Bureau, as retrieved from Statistic Brain Research Institute.
Decision scientists have long been interested in savings decisions. They have found many reasons why people don’t save enough, and many tricks to get people to save more, which I may write about another time.
One important reason though is probably simply that people are overwhelmed, because there is no one correct answer as to how much we need to save, and how to get there.
However, there are calculators to help you estimate how much you need to save for retirement. I found one by Fidelity that I liked more than others, because it doesn’t ask for a lot of details about your financial situation. You can enter just a few rough estimates and then play around with sliders to see what variables make a difference. Two things I’d like to point out:
- It’s important to understand how the calculator treats your income: it assumes you’ll want an income during retirement that’s 85% of your pre-retirement income, so that you can maintain a reasonably similar living standard. That means the lower your income, the less you need to save in order to reach that goal and be able to maintain your living standard after retirement. It took me a while to figure this out: that if I enter a lower income, I’ll be more likely to have enough savings. It’s a little counterintuitive, but makes sense.
- What I found striking and encouraging is how much of a difference the monthly savings can make, regardless of whether you already have a lot of previous savings. It can really hit home to see those estimated bars jump around on the screen just by adding another $100 per month.
Be brave and try it for yourself!
Sources and additional reading about savings and retirement decisions:
- U.S. Census Bureau
- Statistic Brain Research Institute
- Working papers available from the Center for Retirement Research at Boston College
by Ursina Teuscher (PhD), at Teuscher Decision Coaching, Portland OR
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