There’s an old Chinese proverb that says, “The best time to plant an orchard is 20 years ago. The second best time is today.
I was reminded of that wisdom as I looked over JP Morgan’s latest recommendations on retirement savings rates. As their data makes clear, it’s never been more important to start saving early – but it’s never too late to turn things around and create a comfortable retirement.
How Much You Should Have Saved For Retirement By Now
The numbers crunchers at JP Morgan created a series of retirement savings checkpoints to help investors judge their progress on the road to post-career financial security. They assume you intend to maintain your lifestyle when you leave your career, plan to retire at 65 and will earn an average 5% return on your money in retirement.
Based on those assumptions, JPM says a 50-year-old who earns $100,000 should have already saved $450,000. A 40-year-old who makes the same amount should have $230,000 socked away. The 35-year-old earning $75,000 is expected to have $90,000 in her retirement accounts.
Feeling a cold sweat? You’re not alone. Not many Americans are hitting such those benchmarks. A 2015 study by the National Institute on Retirement Security found that 62% of working households age 55-64 had retirement savings worth less than their annual income. The same study reported that median retirement account balance for households nearing retirement was $14,500.
While misery does love company, that’s not very comforting in this situation. Fortunately, things aren’t as hopeless as they might appear. Not even for you.
First off, you may not need as much money as you think. Financial planning articles and guides frequently recommend that you amass a retirement nest egg of $1 million to $2.5 million. But there is no specific ante for a happy post-career life. My research into retiree happiness revealed that most happy retirees had a minimum of just $500,000 in savings. But the amount you need for a safe and happy retirement depends largely on your post-career spending needs. If you plan to “retire-in-place” and spend your days doting on the grandkids, you’ll need less money than if you hope to travel the world and/or build that lake house.
What’s more, JP Morgan is assuming your retirement spending level will be similar to your current rate. That’s not necessarily true. In retirement, for example, you won’t be paying costs related to kids or your career. And, hopefully, you will have paid off your biggest monthly obligations – your mortgage and car payments.
Catch Up On Your Savings
So, don’t get freaked out by charts. Develop a vision for your retirement and determine how much you’ll need every month to pay for that lifestyle. There’s a useful calculator that can help you do exactly that.
Once you have an idea how much you need, start thinking about how you will meet that need. Yes, prioritize your future — boost your savings rate, if possible. Consider pushing back your retirement a few years, especially if you enjoy your work. But figure out, too, how to create and maximize other retirement revenue streams. Your monthly Social Security payments can vary dramatically depending on when you start taking benefits. Do that math. Start thinking about a part-time job in retirement – something that will bring you both income and enjoyment in the first few years after you leave the 9 to 5.
Rental properties can also generate a steady stream of income. No money to buy a rental house or condo? Well, if you’re looking to downsize in retirement, think about renting your current paid-off home for a few years.
Of course, spending is part of the equation, too. There are numerous ways to reduce your cost of living in retirement. Do you really still need that four-bedroom house in a great school district? Heck, do you even need to live in your current city? There are numerous metropolitan areas across the U.S. that offer a great lifestyle and low costs of living. Indeed, your options are global. More and more Americans are retiring to countries where they can live comfortably on a fraction of what they’d spend back home. Seriously – a fraction.
Regardless of your situation, you can most likely still craft a great retirement. But, of course, the most important part of doing anything is getting started. So, plant your orchard today. Figure out where you are, what you need, and make a plan. The fruits of your labor will be oh, so sweet.