It's Never Too Late to Start Saving for Retirement | ETF Trends

A majority of Americans are woefully underprepared for retirement, but it is never too late to start taking it seriously.

“Approximately half of Americans are at risk of not being able to maintain their pre-retirement standard of living after they stop working,” Angie Chen, a research economist at the Center for Retirement Research at Boston College, told CNBC.

According to the latest Federal Reserve Survey of Consumer Finances for 2019, the median amount of savings in Americans’ retirement accounts stood at $65,000. When broken down into age groups, Americans aged 55 and 64 held a median savings amount of $134,000. Meanwhile, Americans under the age of 35 only had $13,000.

As investors plan for their golden years, many follow the so-called Rule of 25 or saving 25 times your expected annual expense in retirement. This would help achieve a 4% withdrawal rate from savings annually over a 30-year horizon across one’s retirement years.

“People shouldn’t be targeting a number as much as a savings rate,” Chen added. “The best thing people can do is to save early and save consistently.”

According to the Center for Retirement Research, the rate of savings required for individuals who begin saving at 25 and retire at 62 were 11% for the lowest tercile for households based on income, 15% for middle-income earners, and 16% for high-income individuals. An investor can still start saving until later, but the rates will only increase to achieve their desired amount once retirement hits.

For instance, a medium-income earner seeking to replace 70% of pre-retirement income will have to save 24% of their income if they begin at age 35, or a likely impossible 44% savings rate if they start at age 45, according to Center for Retirement Research.

No One-Size-Fits-All Approach

Nevertheless, there are no one-size-fits-all, cookie-cutter retirement savings plans since everyone has their own individual needs and life goals.

“When it comes to behavioral change, well-meaning guidelines are often not very good in application,” certified financial planner Jude Boudreaux told CNBC. “There are general rules, and then there are everyone’s personal circumstances.”

“My wife and I didn’t meet retirement-savings targets because we were building my advisory practice,” Boudreaux added.

Furthermore, many warn against taking on more risks later in life to make up for lost time savings. It would be a better strategy to delay retirement and/or reduce spending to better stretch savings and claim a higher Social Security benefit.

“Don’t take more risks to make up for lost time,” Boudreaux said. “You could end up in a much worse situation.”

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