Americans are growing increasingly pessimistic about their retirement prospects, according to a recent Gallup poll. The poll revealed that 46% of nonretirees do not believe they will have enough money to live comfortably in retirement.
Although this figure is lower than it was six years ago—on the tail of the Great Recession—it is considerably higher than it was in 2002, when just 32% of people expressed concerns over having enough.
Preretirees are more pessimistic
The poll also revealed a significant disparity in confidence between those who have and have not yet retired. In 2018, 51% of preretirees expect to have enough to live comfortably in retirement. By contrast, 78% of those already retired have expressed confidence that they have enough to life comfortably. This 27% gap between preretirees and retirees is likely being caused by a number of factors.
1. The death of pensions
Current retirees are a lot more likely to have pensions than those not yet retired. Pensions guarantee a certain amount of income for life, much like Social Security benefits. In days gone by, when employees spent most of their careers at a single company, companies offered pensions as a retirement incentive.
Today, pensions are far less common. Instead, employers commonly offer 401(k)s, which do provide valuable tax incentives for retirement savings, but they don't guarantee any amount of income for life.
2. Uncertainty about Social Security
As with pensions, current retirees enjoy full Social Security benefits. However, that does not mean the Social Security program is healthy. As of June 2018, the Social Security program is running at a deficit, and the current trend points to insolvency by 2034.
It is unlikely that the federal government would allow the program to die altogether, leaving current workers with no money from Social Security upon retirement. At the very least, the program will continue to be funded by FICA taxes, providing some income for future retirees. However, millennials shouldn't plan on receiving more than 75% of the benefits they should qualify for under current standards.
3. Difficulty planning for retirement
Predicting how much money you'll need for retirement is difficult. If you're still paying off a mortgage, credit card bills and student debt, the prospect of living for decades without a job might seem impossible.
However, once you're actually in retirement and you have hard numbers to look at, calculating how much you have and how much you need becomes a lot simpler. Between 2002 and 2004, Gallup surveyed a group of preretirees aged 50 to 64. Of that group, 54% said they believed they'd have enough to live comfortably in retirement. Sixteen years later, Gallup surveyed retirees aged 65 to 80—roughly the same group of people. Of that group, 77% claimed they did have enough after all.
Young people are more optimistic
Oddly enough, individuals under 30 were more optimistic about their retirement prospects than their older counterparts. In 2018, 64% of those between 18 and 29 years of age are confident about retirement. Of those aged 30 to 49, only 44% are optimistic. Those aged 50 to 64 were only slightly better off, with 49% believing they'd have enough.
How much should I be saving for retirement?
It's hard to nail down exactly how much you should save for retirement because there are so many variables. Do you plan to rent or own a home when you retire? If you plan to own, will your mortgage already be paid off? Will you carry any other significant debts? Will you live in a low-cost area, or do you think you're an urbanite for life? How much do you plan to travel?
It's impossible to know the answer for all of these questions, but as a general rule, experts say you'll need about 80% of your final annual salary in savings and Social Security income each year to carry on a similar lifestyle in retirement.
How much you'll receive in Social Security benefits is out of your control, except for the fact that you'll need to work for at least 30 years to maximize your benefits. You can get an estimate of how much those benefits will be with this Social Security calculator.
However, how much of your salary you put away is in your control. To reach your target savings, you should try to put at least 10% to 15% of your salary into retirement savings each year. Those starting in their 20s can afford to save a smaller percentage. However, if you delay saving until your 40s or 50s, you will need to put away significantly more in order to have enough.
Then, every five to 10 years, compare your overall retirement goals with your current savings to tell if you're on track for retirement.