At the age of 62, this piece provides an estimation of the ideal investment sum for retirement.
At the age of 62, this piece provides an estimation of the ideal investment sum for retirement.
Retirement planning is a crucial part of adult life, yet many people are unaware of the amount they need to save up for retirement, making it challenging to determine if they're saving adequately. This ignorance could be a factor contributing to the rise in the average retirement age in the United States from 57 in 1991 to 62 today.
Reaching the age of 62 is significant as Americans can commence receiving Social Security benefits if they meet the necessary conditions.
However, relying solely on Social Security for retirement is not advisable. It's essential to understand the amount needed for a comfortable retirement and plan accordingly. Below, we have compiled the views of professionals regarding the savings target for people aged 62 and some tips to help you meet your goals.
Expert Views from Fidelity
According to Fidelity, one of the leading retirement plan administrators in the United States, people should aim to save between 8 to 10 times their pre-retirement income by their early 60s. Considering the median US household income of around $80,000, this translates to a savings target of $640,000 to $800,000.
Of course, this isn't a one-size-fits-all target, and various factors such as living costs, lifestyle, etc., may influence the actual savings needed.
Unfortunately, many people are falling short of these targets. A 2022 Federal Reserve survey revealed that the median retirement savings for individuals aged 65 to 74 is only $200,000. It's evident that a large number of people are far from meeting their retirement savings goals.
Tips to Get Back on Track with Retirement Savings
Even if you're behind on your retirement savings, it's never too late to improve your situation. Although someone starting late in their 50s might not reach the same level of wealth as someone who started saving much earlier, they can still prepare enough money to meet their basic needs. Consider adopting these simple strategies to regain control of your retirement savings.
Maximize Your Employer's Retirement Plan
Most employees have access to a retirement plan through their employer. For instance, Federal government employees might benefit from a Thrift Savings Plan, while those working in private companies may have a 401(k). These popular choices allow pre-tax contributions from your salary, which can reduce your taxable income during your working years, thereby lowering your tax burden during retirement.
Many companies offering 401(k) plans also provide matching contributions, which is an easy way to boost your retirement savings. The 401(k) is my preferred retirement savings tool for building my nest egg.
Get Your Finances in Order
With expenses skyrocketing, managing your finances wisely becomes crucial. Every household has its unique financial situation, but budgeting and spending planning are essential for everyone. Unwanted subscriptions, even for streaming services, can quickly add up to a significant amount.
Evaluating your financial situation and identifying areas for cost savings can help you direct your funds towards your retirement goals. Paying off and avoiding high-interest debt, such as credit cards, is also important as they can drain your disposable income.
Keep Your Investments Simple
Your investment options might vary depending on your retirement account type, but simplicity is key to long-term wealth creation. A diversified portfolio consisting of mutual or index funds is often sufficient for most individuals. A savings account could be a safe bet, but it may not offer the high returns needed to help your money grow through compounding. On the other hand, taking too much risk can lead to unwanted volatility or permanent losses.
An S&P 500 index fund or a large-cap mutual fund is a great investment option as it focuses on well-established companies, offering a solid growth potential with a low risk of disaster. Protecting your hard-earned savings during retirement should be your primary concern.
After learning that a savings target of 8 to 10 times pre-retirement income is recommended by Fidelity for individuals aged 62, it's clear that many people need to adjust their savings strategies. With the median US household income of around $80,000, this translates to a savings goal of $640,000 to $800,000, yet the median retirement savings for individuals aged 65 to 74 is only $200,000. This significant discrepancy highlights the need for effective financial planning and savings strategies, especially considering the importance of retirement finance and the potential challenges of retirement.
It's worth noting that maximizing your employer's retirement plan can be a valuable tool for meeting retirement savings goals. For example, Federal government employees can benefit from a Thrift Savings Plan, while private company employees may have access to a 401(k) plan, both of which allow pre-tax contributions and may offer matching contributions. Utilizing these plans effectively can help individuals build their retirement nest egg more efficiently.