Most Americans have close to nothing to retire on. In fact, the average family in the U.S. has only set aside $5,000 for retirement. Another 43% of Americans have no retirement at all, according to the Economic Policy Institute. More than 70% have less than $50,000 in their 401(k) accounts, too. Worse, the typical savings account holds just $17,000.
Others believe the retirement lies.
No. 1 – Don’t worry. You have plenty of time.
The younger you start saving, the more time your money has time to grow and compound. Let’s say you want to build a nest egg by the time you’re 65. If you start saving by 20 with a rate of 8%, you would just need to set aside just less than $190 a month for that. If start saving by the age of 50 with the intention of reaching $1 million at a rate of 8%, you would need to set aside just under $2,900 a month.
No. 2 – You can always rely on Social Security
You really can’t. The average monthly check is just under $1,400 a month.
No. 3 — $1 Million is enough to retire on
That number may sound big, but adults know it’s really not. It doesn’t go as far as it used to. It also ignores financial realities. Instead of focusing on what you would like to have though, figure out what you may need to spend in retirement to actually live. One way to do that is with the Rule of 25, where you multiply current spending by 25 for an idea of how big your nest egg may need to be in retirement. If you spend $10,000 a month, you’d need $250,000 in retirement.
No. 4 – We can’t afford to save
Really? How much did that new wardrobe cost you? If you cut back on frivolous spending, you have money to save in a retirement account. Unfortunately, many of us expect to see a windfall when our great aunt passes and leaves you a million dollars in your dreams. A Millennial that skips Starbucks twice a week at $20, and instead invests it could save just under $19,400 extra.
When you retire, healthcare costs begin to jump. For example, according to reports a couple that retired in 2015 — both aged 65 can expect to pay $245,000 through retirement. That’s up from $190,000 in 2005.
No. 5 – I’ll start saving when the market improves
Don’t try to time the market, and jump in when all looks great. If you save regularly over the years, your investments, like the stock market, will do well, as they have historically done.
Invest for the long haul and don’t be concerned with market dips.