More than half (56%) of American adults don't know how much money they'll need to retire, according to data from Northwestern Mutual's 2019 Planning & Progress Study.
That's alarming. Without understanding how much money they'll actually need, many people are failing to effectively save for retirement, Emily Holbrook, senior director of planning at Northwestern Mutual, tells CNBC Make It.
Although there are general guidelines that detail how much you should aim to save, "it really comes down to a lot of specifics for people individually," Holbrook says.
Retirement doesn't look the same for everyone and what works for your friend or neighbor may not be enough for you. "You need to understand, how do you anticipate living life in retirement? Will you have expenses that go up, if you want to travel a lot, for example?" Holbrook asks. "What travel do you want to do? How does it align with what your spouse thinks about retirement plans? You need to not only have a rule of thumb, but really think through what retirement looks like to you."
Many Americans aren't taking these steps to plan ahead, and it shows in their bank accounts. A worrisome 22% have less than $5,000 in savings earmarked for retirement, Northwestern Mutual found. Another 5% have between $5,000 and $24,999 put away and only 16% have saved $200,000 or more.
On average, survey respondents say there's a 45% chance that they'll outlive their savings. Yet despite being aware of this, 41% haven't done anything to improve their situation.
If you're unsure how much you should be putting away for the future, Holbrook recommends sitting down with a trusted financial professional who can help create a personalized plan. "People absolutely should be taking steps," she says. "They need to meet with a financial advisor and discuss their options."
To get a ballpark idea of how much you should aim to save, Nick Holeman, a certified financial planner and senior financial planner at Betterment, says to start by asking yourself two simple questions:
- What age do you want to retire?
- How much do you want to spend per year in retirement?
From there, you can begin to calculate how much you might need. It's also important to consider factors such as life expectancy, taxes, Social Security and how much debt you have, he says.
Financial services company Fidelity also offers guidelines on how much you should aim to have saved at different milestones if you want to retire at 67.
- By 30: Have the equivalent of your salary saved
- By 40: Have three times your salary saved
- By 50: Have six times your salary saved
- By 60: Have eight times your salary saved
- By 67: Have 10 times your salary saved
For more information on how to figure out if you're on track to have enough saved in retirement, check out the following resources.
- Here's how much you need to put in your 401(k) every month to retire with $1 million
- Everything you need to know about 401(k)s, IRAs and other retirement savings accounts
- $1 million may not last you in retirement—here's how to figure out how much you need
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