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A Naru Wallet survey conducted online in the Harris poll in October 2024 found that only 23% of Americans assessed progress towards retirement savings targets over the past 12 months. The first step to check in how you are doing is to get a sense of the numbers you are aiming for.
Set retirement goals
It may be appealing to measure your retirement savings for others of your age, but like many financial goals, this is personal. The money you need to retire depends on factors such as the cost of living where you are leaving, whether you have a supportive loved one, and planning to spend your golden age. A good question to ask yourself is, “How much money do you need to retire the way you want?”
There are many unknowns in the future between the present, 20, 30, and 40 years. But a good starting point is to calculate the amount you need for retirement income. This includes examining current expenses, determining which increases or decreases before resignation, and adding additional expenses that you plan to make when you leave the employee.
If you calculate using general rules of thumb, you might assume that 70% to 90% of your current income has retired. Most people don’t save for retirement and don’t pay payroll taxes or other labor-related expenses, so they don’t need that much money when they retire to continue their current lifestyle.
Calculate the amount you need to save
Knowing how much you need when you retire will use your retirement calculator to determine if you’re saving enough to achieve that goal. The calculator will enter your age, current savings, monthly contributions, and monthly retirement budget. You can also adjust for factors such as retirement age, return rate, life expectancy, and expectations regarding salary increases and inflation.
If your existing retirement savings and monthly contributions do not reach your savings goals, adjust the calculator contributions to make sure you need to save money. It is important to note that this is a stadium estimate and that unknown plans for the future are difficult. However, knowing what you need to earn and get to the target’s retirement income will help you measure your progress. Furthermore, this goal can be adjusted as you approach retirement age.
If necessary, start increasing your savings to achieve your goals
Research shows that just a quarter (25%) of Americans have taken steps to increase their retirement savings in the past 12 months. If your calculator exercise shows you that your existing savings and contributions are on track, great! continue. However, if you need to start saving more, consider the following:
Increases auto contribution setup. Some retirement accounts allow you to set up an annual increase. For example, you can set up a 401(k) contribution and automatically increase by 1% each year. (Depending on your plans and the size of the company you work for, this may be done automatically for you if you don’t opt out.) Over time, this can make a big difference even if the changes are small.
Let’s say you have a salary of $50,000 and you’re currently giving 10%, or $5,000 a year. Increased it to 11% or to $5,500 a year may not seem like a big win, but an additional $500 a year contribution is worth over $49,000 in 30 years with a 7% return. And it assumes you won’t continue to increase your contribution every year.
Save money on salary increases. If you can without that, invest your next salary increase in retirement. This means increasing the contribution of the 401(k) or 403(b) or putting additional funds into the Roth IRA. Don’t you want to save everything? Please clean up some of it instead. It’s a bit helpful.
Evaluate the rewards of spending and debt. Track your spending for months and see if there are any things you can reasonably cut or cut to free up more money to invest.
Regarding debt return, if you are actively repaying low-interest debts, such as interest rates with interest rates below 5%, it may be worth considering whether some of the extra money will save you money for retirement while the retirement progresses. Ideally, you should aim to tackle some important financial goals, such as investing in retirement, saving emergency funds, and paying off debts at the same time, getting all financial ducks in a row. At the very least, make sure you’re contributing enough to get a company match with the retirement fund before allocating more money to low interest rate obligations.
The complete research method is available in the original article published on Nerdwallet.
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Erin El Issa writes for Nald Wallet. Email: erin@nerdwallet.com.
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Original issue: March 5th, 2025, 2:08pm EST
