Underfunding an IRA or 401(k) could lead to a world of financial stress in retirement. And that's why it's time to throw the old convention of saving 10% of pay for retirement out the window.
The cost of retiring is only going up thanks to factors that include inflation and increases in Medicare costs. Plus, Social Security is facing a serious financial crisis that has the potential to result in benefit cuts. If that happens, future retirees will become even more reliant on personal savings to cover their living costs in the absence of a job.
Image source: Getty Images.
That's why it's important to try to save more than 10% of your paycheck for retirement. And in that regard, there's some encouraging news: Workers across all generations seem to be embracing this trend.
A growing number of workers are boosting their savings rates
Saving above 10% of your salary for retirement might not be an easy thing to do, but more and more people seem to be doing it.
A good 44% of workers today are considered so-called "super savers," according to Transamerica, which means they are contributing more than 10% of their pay to a 401(k) or IRA . Specifically, 15% of savers today are contributing 11% to 15% of their salaries toward retirement, while 29% are contributing more than 15%.
This trend also exists across generations. And surprisingly, the youngest workers are most likely to be super savers. A good 52% of Gen Zers fall into this category, compared to 44% of millennials, 40% of Gen Xers, and 44% of baby boomers, Transamerica found.
Are you saving enough for retirement?
Of course, the flip side of all of this is that 56% of workers who are saving in a retirement plan are contributing 10% of their pay or less. And that means a good number of workers risk a serious savings shortfall. But if you've been struggling to reach super saver status, there are some strategies to boost your savings rate.
For starters, aim to save every raise you receive. If you never get used to spending the extra money in your paychecks, you shouldn't struggle to save it. It's an easy way to increase your 401(k) or IRA contribution rate over time.
Next, if you have a 401(k), make sure you're contributing enough to snag your employer match in full. Also, pay attention to your company's 401(k) vesting schedule . You might, for example, decide to hold off on getting a new job if you're close to vesting and stand to lose a large 401(k) match by jumping ship early.
Also, don't limit yourself to saving for retirement in an IRA or 401(k). If you're a higher earner, you might need to look beyond one of these plans to save more than 10% of your salary. Other options you can look at include a taxable brokerage account or a health savings account (HSA) if your health insurance plan is compatible with one.
If you're close to retirement age and are looking to save beyond what an IRA or 401(k) will allow you to, you could look at CDs -- especially today, given how high rates have climbed. It's a good idea, as it allows near-retirees to keep a portion of their nest egg in cash. So if you have maxed out a tax-advantaged retirement account, a CD could be a great place to put the rest of the money you want to allocate to long-term savings.
It's great to see that more people are contributing larger amounts of their pay to a retirement plan. If you're not there yet, aim to ramp up your savings rate over time. Increasing your retirement-plan contributions by even a small amount could go a long way.
The Motley Fool has a disclosure policy .
Most Popular
Comments / 0