Figuring out exactly how much to save for retirement seems like a complex process. It may still be more than 10 years out, and involve hundreds of thousands of dollars for some people. At first glance, retirement savings plans seem almost too daunting to deal with. But too many Americans retire without adequate savings, or may be forced to retire earlier than anticipated. In fact, a study by the Schwartz Center for Economic Policy found that as many as 55 percent of those near retirement age will have to rely solely¹ on Social Security due to inadequate savings. Some hope to rely on Social Security funds, but these may not even scratch the surface of expenses that accumulate with age. To make your retirement more manageable, take these simple tips into consideration.

Simple yet satisfying

The simplest tip for managing savings throughout your life: don’t spend it. It may sound completely obvious, but it’s much more difficult than you might think. A recent study by the Employee Benefit Research Institute tracked 401(k) fund participation rates² in a wide variety of employees starting in 2007 and ending in 2013. This period covered the entirety of the economic downturn that saw the economy contract significantly. The average fund followed by the study fell 25.8 percent in 2008. However, when the economy began to rebound in 2009, the average 401(k) fund regained those losses and actually made almost an 11 percent profit over the starting amount. Investors who pulled their savings out early, either because of market uncertainty or an unexpected life event, missed out on those gains. This only proves that old mantra about the turtle and the rabbit: Slow and steady wins the race.

Dollars and Percentages

By now, it should become clear why it’s vital to begin saving as soon as possible. But how can you make sure you’re saving enough? Lifehacker pointed out another easy to remember but easier to ignore savings stipulation: Always save a percentage³ of your income, instead of a fixed dollar amount. Preferably, this should be done in an automatic deduction from your paycheck, but even if that’s not possible, it’s a great habit to get into regardless. This will keep you disciplined and make your finances just a little more streamlined.

Fast forward 30 years, and you’re ready to begin winding down your careful saving and turn it into even more careful spending. You may have set some goals for how much you would like to limit your spending in retirement, but chances are, they are a bit too optimistic. A study by the Insured Retirement Institute and the Center for Generational Kinetics found that millennials generally thought they would be able to spend less than $36,000 per year in retirement. In reality, the average spending amount is at around $46,757 in 2013.

Wait and See

Unlike the rest of the best advice on retirement budgeting, the best way to decide on a spending plan is to wait. Kiplinger’s Personal Finance suggested multiplying a year of expenses one year prior to retirement⁴ by 33 to get a feel for the total amount needed to maintain your current lifestyle. This updates a commonly held rule of thumb that stipulates 25 times annual preretirement expenses needed for savings, but this does not account for market returns on investments that may end up being lower than previous points in history. Social Security benefits can be subtracted from this annual amount, but Kiplinger’s recommended rethinking how long you wait to cash out on those. Every year you wait after age 66 to take out Social Security, your available benefit can grow by about 8 percent. Alternatively, you could just continue working beyond 65 if your job and health allow it. Take all these things into consideration before making the leap, but remember that unless you’re five years away, just concentrate on saving as much as possible.

The views expressed by the articles and sites linked in this post do not necessarily reflect the opinions and policies of Cash Central or Community Choice Financial®. 

Sources:

¹Bahn, Kate, Ghilarducci, Teresa, and Saad-Lessler, Joelle. Retrieved from: https://www.economicpolicyresearch.org/images/docs/research/retirement_security/Are_US_Workers_Ready_for_Retirement.pdf

²Alonso, Luis, Bass, Steven, and VanDerhei, Jack. (2015, Sept 15). Retrieved from: https://www.ebri.org/publications/research-publications/issue-briefs/content/what-does-consistent-participation-in-401(k)-plans-generate-changes-in-401(k)-account-balances-2007-2013-3274

³Wong, Kristin. (2015, Sept 28). Retrieved from: https://lifehacker.com/save-by-percentage-not-dollar-amount-to-avoid-lifesty-1732699269

⁴(2015, Sept 26). Retrieved from: https://richmond.com/business/personal-finance/article_11acf2d1-f480-5637-8113-99bc82d0eaa8.html