It’s difficult to set aside a portion of our paychecks for the future when there are so many more immediate expenses clamoring for our limited paychecks. Building a nest egg is especially challenging when you don’t have an estimate of how much you will need and a plan to get there.
Less than half (48 percent) of current employees say they are aware of the amount of money they will need to be comfortable in retirement, according to a Principal Financial Group survey of 1,127 adults employed by firms with between 10 and 1,000 employees. Baby boomers (57 percent) are the most likely to have an idea of how much they will need, while less than a third (31 percent) of members of Generation Y have a savings goal. Men (57 percent) are also more likely than women (40 percent) to report having calculated how much money will be necessary in retirement.
Under a third of workers (30 percent) think they are saving enough to live comfortably in retirement. Most of the employees in the survey (54 percent) report that they are currently saving 8 percent or less of their salary, including any employer match they are getting. An even bigger majority (62 percent) of the survey respondents believe that they need to be saving 9 percent or more of their pay to achieve a secure retirement. The most common amount workers are saving is between 3 and 5 percent of their pay (21 percent) or between 6 and 8 percent (17 percent) including their employer’s contributions. The most popular retirement savings goal is between 12 and 15 percent of pay (21 percent) and 20 percent or more (19 percent). Here is how to motivate yourself to save more for retirement.
Boost your income. Most of the workers say an increase in pay is what would most encourage them to boost the amount they are contributing to a 401(k) (71 percent). If you can’t negotiate a pay increase from your employer, consider taking on part-time or consulting work and using some of the extra money to build your nest egg.
[Visit the U.S. News Retirement site for more planning ideas and advice.]
Find a job with a match. When your employer contributes to your retirement account, that’s less money you have to save on your own. Many employees say an increase in the 401(k) match (43 percent) or the addition of a match when one is not currently offered (14 percent) would be a powerful motivator to save.
Project your expected growth. Some workers say they are waiting to increase their savings rate until they see a positive rate of return on their account (27 percent) or improvements in the economy (26 percent). But the biggest builder of your wealth is how much you save. Calculate how much the amount you are currently saving will grow to by the time you are ready to retire. Then do the same calculation assuming you save 1 percent more. Saving even an extra 1 percent over the course of your career can yield impressive results.
Redirect your tax break. Some workers (15 percent) plan to save the 2 percent reduction in their Social Security payroll tax in 2011 for retirement. Also, consider redirecting part or all of your tax refund to a retirement account or using it to purchase savings bonds. You can do both of these things directly on your tax return.
Set a goal. Some workers say that completing a retirement needs calculator (8 percent) or getting a retirement savings recommendation from a financial adviser (7 percent) would make is easier to know how much to save. Set a retirement savings goal and determine the steps you need to get there.
Make it automatic. Have a part of your paychecks directly deposited into a 401(k), IRA, or other retirement savings vehicle. Also remember to periodically increase this amount as you get raises until you are saving enough to reach your retirement goal. Some employers will automatically escalate the retirement account contributions withheld from your paycheck unless you opt out. Some 6 percent of retirement savers say automatic escalation would be a welcome way for them to save more for retirement.