Working longer isn't the only solution, however. Hewitt found that most workers could accumulate almost all the money they needed simply by boosting their retirement contributions by 1 percentage point every year for five years.
That's right: Go from 5% to 6% this year, from 6% to 7% next year and so on.
That one act would more than double the percentage of people on track to have enough (from 18% to 36%), Hewitt said, and get an additional third within spitting distance of their goals (32% would have a shortfall of one to two times their annual pay).
Finding a way to save more is rarely easy, but it's essential. The longer you put this off, the greater the toll you're taking on your future self.
- Make retirement savings a priority. Don't put it off in favor of other goals, even paying off debt. If you want a comfortable retirement, you need to start early and save consistently, or save aggressively if you got a late start. Hewitt says a 25-year-old employee who makes $30,000 can get there by contributing 11% of pay, assuming an employer match of 5%. If she waits until age 40 to start, she needs to save an average 17% a year.
- Figure out how much you need. MSN Money's Retirement Planner is a simple tool that can help you estimate how much you should save.
- Start somewhere. Anything is better than nothing, even if you can't contribute as much as you should right now. For more on the math involved, read "Yes, you will live to be 80."
- Ramp up your savings over time. An easy way to save is to commit half of any raise you get to your 401k or other retirement plan. If you aren't getting raises or want to contribute more, review your spending for places to cut. MSN Money's Saving Money Decision Center can help, as can the 50/30/20 budget calculator.
- Leave the money alone. Cashing in your retirement funds is foolish, and the younger you are, the worse the damage you can do. It's not just that you would lose one-quarter or one-half of the money to taxes and penalties; you would lose all the future tax-deferred returns. Figure a $1,000 withdrawal in your 30s would cost you at least $10,000 in future retirement income. In your 20s, the toll would be more than $20,000. If you want to have a decent retirement, keep your mitts off the money until you get there.
Published May 19, 2010