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Despite all the talk of a retirement crisis in the US, there is some encouraging news: A significant share of middle-income households — those earning between $50,000 and $100,000 per year — are setting aside roughly 8% of their income for retirement, according to a Principal Real Life Retirement Journeys survey.
With an employer match, that savings rate can rise to 12%, according to Jean Chatzky, host of the Her Money podcast, putting it within the 10% to 15% range that retirement experts typically recommend.
"Would I like to see them get to 15%?" Chatzky asked in a recent episode of Decoding Retirement (listen below). "Absolutely. We know that if you can save 15% over a really long period of time — decades, your working career — then when you get to retirement and you combine your savings with Social Security, you will generally have enough to replace 75% to 80% of your pre-retirement income."
Overall, the trend is going in the right direction.
This savings rate "is pretty good," Chatzky said, especially in light of other studies that have found that some people save only a small percentage of their income, sometimes in the low single digits, and other individuals have less than $400 set aside for emergencies.
"When we talk about a retirement savings crisis in this country ... what that number says to me is that maybe things are actually turning around," Chatzky said.
How much should you save for retirement?
Of course, even if you're saving 15%, it's helpful to know how much you'll need to accumulate in your nest egg to fund your desired standard of living in retirement, Chatzky said.
"Sometimes it is tough to get ourselves to save if we don't know where the goal line is," she said. "But many experts will suggest that by the time you retire, you have about 10 times your salary put away for retirement."
In other words, if your financial salary is $100,000, you'll need $1 million earmarked for retirement, and if your salary is $200,000, you'll need $2 million set aside for retirement.
"Saving that amount of money takes a really long time," Chatzky said.
But putting your money to work through compounding can make a big difference. When people reflect on their retirement savings, Chatzky said many say they wish they had started earlier.
According to Chatzky, automatic enrollment and auto-escalation have made saving in 401(k) plans easier and significantly increased retirement savings. Automatic enrollment, which enrolls employees in their employer's 401(k) plan unless they opt out, has significantly increased participation rates. And auto-escalation, which incrementally increases contributions annually, helps employees reach optimal savings levels.
"My favorite tip is to lean into technology," Chatzky said.
French runner Barbara Humbert, 83, and her husband, Jacques, look at pictures on a computer screen at their house in Eaubonne near Paris, France, April 26, 2023. (REUTERS/Gonzalo Fuentes) ·REUTERS / Reuters
She noted that, according to an AARP study, people are 15 times more likely to save for retirement when they have access to a workplace plan and 20 times more likely if their workplace savings are automatic.
"If you have a workplace plan available to you, get in it," she said. "Grab all the matching dollars that you can, and take a page from auto-escalation and continue to bump up your contribution every time that you get a raise until you are maxing out. That is the very, very best thing that you can do. If you can do more, then put money into your 401(k) or whatever account you have at work."
In the podcast, Chatzky also emphasized the importance of maximizing all available retirement savings accounts, including Roth accounts, traditional IRAs and 401(k)s, health savings accounts (HSA), nondeductible IRAs, 529 plans, and taxable accounts.
The Principal study found that 78% of nonsavers still intend to save for retirement in the future. However, they cite high expenses, low income, and debt repayment as the primary barriers preventing them from saving now.
"They're real challenges," Chatzky said.
Expenses have risen significantly in recent years due to inflation, and while inflation has moderated, prices remain higher than they were a few years ago, making everything from buying a home or car to grocery shopping more difficult.
Additionally, while wages have increased, they haven't kept pace with the cost of living for some workers. At the same time, consumer debt has been rising, with many people carrying holiday debt that they may not be able to pay off until well into 2025.
"A lot of people these days spend very quickly and often very unconsciously," Chatzky said. "We have a lot of subscriptions. We tap our cards and swipe our cards and dip our cards without thinking about it. We use one-click ordering on Amazon a little bit too easily, and as a result, our money is flowing through our fingers in a very, very quick way and we are not paying that much attention."
The way to turn this scenario around, she said, is by doing "backwards budgeting," which she does in her FinanceFixx coaching program at HerMoney.
"You look at where your money is going, and you break it down into categories and you ask yourself, 'Where can I make some small but meaningful changes?'" Chatzky said.
Doing this can free up a little cash each month that can be used, for instance, to pay down debt.
And as part of this exercise, you might find you are spending much more than you thought on food. Chatzky said meal planning is one trick that can make a big difference in saving money on groceries.
Subscriptions are also a big culprit. "The average household during the pandemic had 24 different subscriptions, and if you haven't looked at them in a while, chances are pretty good that you're not using at least some of them and could cancel them," she said.
"So pay a little bit of attention, make some changes, and that'll start taking you in the right direction," she said.
And if you haven't checked your credit score in a while and are carrying high-interest credit card debt, Chatzky said improving your score could help you secure lower interest rates. Consider options like balance transfers or debt consolidation to reduce your interest costs and make repayment more manageable.
