Adirondack chairs on a wooden pier

Adirondack chairs on a wooden dock on a calm lake in Muskoka, Ontario Canada. Cottages nestled between trees are visible across the water.

Are you saving enough for retirement? Whether your career is just getting started or you’ve started winding things down, you’re not alone if you’re not sure. A May 2020, 20th Annual Transamerica Retirement Survey of Workers asked survey participants about their greatest retirement fears. The number one concern across all ages was the possibility of outliving one’s savings and investments. 

I’ve seen all sorts of estimates and equations to help you decide whether you’re on track or in trouble. Let me make this easier for you. Basically, you’ve got two sources of income in retirement: (1) your guaranteed income from Social Security and pensions; and (2) your own retirement savings. 

Usually, your guaranteed income won’t be enough to fully support your desired lifestyle after you no longer collect a paycheck. Instead, there will be a gap between what you want to spend in retirement, and the guaranteed income you’ve got to spend. Essentially, you need to save enough during your working years to withdraw enough annually to close that gap in retirement. 

From there, it’s just math. What does that math usually tell us? Absent a major inheritance or lottery windfall, most families need to save and invest quite a bit if they’d like to stress less in retirement. 

Ideally, you’ve been aggressively saving for retirement since your first job. The longer your savings are invested, the more time they have to benefit from the magic of compounding (i.e., your early profits earning additional profits in a growing snowball effect). Also, if you start out as a diligent saver who is used to “paying yourself first,” the good habit is likely to last a lifetime, even as your lifestyle expands. 

Of course, many Americans don’t start saving for retirement until later in their career. Our brains have trouble getting excited about a delayed gratification that will take 40 years to arrive. Plus, we all have competing saving and spending goals: our first car or home, college debt, a better car or home, children, vacations, and so on. Suffice it to say, it’s common to end up playing catch-up with your retirement savings.

Are you in this situation? Don’t be discouraged. In my next article, I’ll share some ideas on how to get back on track.

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