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Experts at Fidelity Investments say that to retire by age 67, you should have 10 times your income saved.
That means if you earn $56,524 per year (the average yearly earnings of someone 55 years and older according to Q3 2020 data from the Bureau of Labor Statistics), you should theoretically have $565,240 saved by your 67th birthday. And some experts argue you should have double that.
If you're nearing retirement and are concerned that you haven't set aside this much — or what feels like enough to last throughout your nonworking years — you certainly aren't alone.
In fact, 45% of baby boomers say outliving their savings and investments is one of their greatest retirement fears, according to the 20th Annual Retirement Survey of Workers conducted by nonprofit Transamerica Center for Retirement Studies.
"These fears may be well-founded," Transamerica CEO and president Catherine Collinson tells CNBC Select. The same survey found that baby boomers have saved an estimated median $144,000 in all household retirement accounts, and less than half (only 40%) had saved $250,000 or more.
Using these and other insights from the Transamerica survey, Collinson shares five steps that older adults can take to help improve their long-term retirement security.
Collinson notes that 44% of baby boomers say they "guessed" their retirement savings needs versus actually calculating what they may need.
When planning how much money you will need in retirement, take the time to actually write down all your predicted spending so that you can properly assess the amount of cash it will take to afford the retirement lifestyle you want.
To estimate your retirement savings needs, base it on your current living expenses or use a free retirement calculator. Budgeting apps like Personal Capital also provide free tools to help you see if you're ready for retirement, such as a retirement planner and calculator.
"While 68% of baby boomers expect to retire after age 65 or do not plan to retire, relatively few are being proactive and taking steps to help ensure they can continue working," Collinson says. For example, she notes that only 40% indicate they are keeping their job skills up to date.
Though retirement is an official end to your career years, the truth is that you may need to find additional sources of income when you retire. In addition to updating your job skills, continue to network with people in your industry and stay aware of the job market.
"Most households will not be able to meet the Fidelity targets," Alicia Munnell, director of the Center for Retirement Research at Boston College, tells CNBC Select. "Given that most households cannot achieve the suggested financial targets, their best option is to work as long as possible — potentially to 70."
Think of it more like phased retirement, instead of ending work completely, especially given how the current pandemic and recession are setting many older adults back. Consider what kind of part-time work would be realistic for your age, health and skills — maybe even something you are passionate about.
You could also find ways to stay employed but move to a different role within your workplace with a more flexible schedule and fewer responsibilities.
As you calculate what your finances will look like in retirement, Collinson suggests you include that in a bigger plan of your overall retirement lifestyle.
"Only 22% of baby boomers have set forth a written retirement strategy," she says.
Collinson recommends including these factors in your written plan: expected retirement age, sources of income, living expenses, government benefits, savings and investments, inflation, longevity and the potential need for long-term care.
In addition, think of how your assets play a role in your overall wealth. "Households need to recognize that the equity in their home is a retirement asset," Munnell says. "Access that equity by selling and moving to a less expensive home or by taking out a reverse mortgage."
Depending on your personal financial history, you could qualify for certain tax incentives that help you save money you can use in retirement.
- Only 34% of baby boomers are aware of the Saver's Credit. This is a tax credit for eligible taxpayers who save in a qualified retirement account, such as a 401(k), 403(b), or similar plan, or IRA. You are eligible if you are 18 or older, not claimed as a dependent on another person's return and not a student. The amount of the credit is 50%, 20% or 10% of your contribution, depending on your adjusted gross income reported on your Form 1040 return.
- Just 62% are aware of Catch-Up Contributions. These allow workers ages 50 and older to contribute to a qualified plan an additional amount over and above the plan- or IRA-contribution limit. Those who qualify can make an additional catch-up contribution up to $6,500.
Financial planning in general can be intimidating, but even more so when it means navigating your retirement.
According to Collinson, fewer than half of baby boomers (45%) use a professional financial advisor to help manage their retirement savings and investments. If you need assistance or have questions about how to save for retirement, or how much, consider seeking professional advice. Brokerage companies like Fidelity and others offer one-on-one retirement planning, advice and overall coaching to help you reach your financial goals.
There are also new affordable ways to plan for your future: In addition to investment apps like Personal Capital, you can also access advisors and financial planners by signing up for membership plans through companies like The Financial Gym and Ellevest.
Planning for retirement is daunting no matter how far away it is. Instead of getting overwhelmed (which can easily happen), be proactive and plan out your future so that the stress of it doesn't stop you from taking action.
"The sooner you get started, the sooner you can chart a course, begin building savings and addressing potential shortfalls and improve your long-term financial security," Collinson says.