Most adults over age 55 are way behind on retirement savings, according to a new survey. And that can be costly.
The survey of 968 respondents, conducted by Financial Engines, showed that 68% of adults age 55 and older have procrastinated when it comes to building a nest egg. Most respondents agreed that the best age to start saving is 25, but, ironically, few actually start saving until age 35.
It makes a difference. The study provides a hypothetical example in which someone who saves 6% of his or her $36,000 salary each year sees her savings increase by 1.5% a year due to raises, etc. If the saver begins at age 25, assuming a 3% employer matching contribution and a 5% annual return, by age 65, he or she will have saved roughly $500,000. To reach the same goal when starting at age 35 or 40, however, the saver would have to contribute 12% (at 35) or 16.5% (at 40) annually.
Clearly, making up for lost time when it comes to retirement saving isn’t easy, but it’s not impossible, thanks to the power of compounding. And if returns are compounded in a tax-deferred account, such as an IRA or 401(k) plan, the potential income growth is even greater.
If, like many savers, you got off to a late start, don’t panic. Simply talk to your advisor and ask for suggestions. Together, you should be able to build a solid plan that addresses your individual financial circumstances and goals.