Are you ready for retirement? According to the latest study from the National Institute on Retirement Security, if you are from an average U.S. household, you are definitely not prepared. Many of us are way behind on saving for retirement, especially those who are without retirement accounts such as the 401(k) and the Roth IRA.
According to the NIRS, the median retirement savings balance for all working-age households is merely $3,000. Sure, that includes young people who haven’t saved much, but the near-retirement households aren’t doing much better. The median retirement saving balance for households ages 55-64 is just $12,000. A lot of families are going to have a rude awakening when they finally retire and realize they have to downgrade their lifestyle significantly.
Households with retirement accounts such as the 401(k) and the Roth IRA have a significantly higher income and wealth. Those households (55-64) have a bigger retirement savings median at $100,000. That’s better, but even that figure is quite low. If you find yourself near retirement without a lot in retirement savings, you will need to work hard now to salvage your retirement.
Run the numbers now. The first step is to keep track of your expenses and see where all the money goes. Then you need to estimate your retirement income. Check your Social Security statement to see how much help you would get from Uncle Sam. Don’t get your hopes up, though, because the average Social Security benefit for a retired worker is only about $1,200 per month. If you have a pension, you can add it to your retirement income here as well. Once you have done this, you can see if there is a big gap between your current expense and estimated income, and you can start figuring out how to reduce the shortfall.
Cut your expenses now. Many households spend most of their paycheck and save only a small portion. When you are near retirement and don’t have enough saved up, it’s past time to get serious about cost-cutting. It’s better to gradually reduce your expenses than to have to cut back suddenly when your income is reduced. Most families can cut a lot of luxuries from their budget and save more.
Start saving more now. If you are near retirement and your retirement savings is low, you need to start saving more now. Many people put off retirement saving because they want to enjoy life while they are young. Time flies, though, and we’ll get old sooner or later. When you turn 55, you need to realize that you’ll most likely live for another 30 years.
Make money doing something you like to do. Of course, the household with $12,000 in retirement savings is in a difficult situation. In this case, members of this household probably need to keep working longer. Having a job you enjoy will help extend your shelf life. It would be even better if you become self-employed. That way, you can keep working as long as you’d like, and nobody can fire you. Working part-time in retirement is a good option, too. It will be less stressful and still keep you active.
Working-class households with very little retirement savings are going to have a very difficult time in retirement. They will probably have to depend on family or the government to fund a minimalist lifestyle, and that’s not a good prospect. You need to think about retirement now, while you are still working, so you can save for the rainy days ahead. Don’t wait until you’re 65 to realize that $12,000 won’t get you very far.
Joe Udo blogs at Retire By 40 where he writes about passive income, frugal living, retirement investing and the challenges of early retirement. He recently left his corporate job to be a stay at home dad and blogger and is having the time of his life.