- If your retirement savings could use a boost, you're not alone. More than half of Americans1 are not on track to cover their essential expenses in retirement.
- You may be able to improve your retirement readiness if you start taking action today.
- To be better prepared to retire, consider key moves like saving more, creating a realistic budget, or working longer. Using a combination of these strategies can be even more impactful.
When you close your eyes after a long day of work, do you ever imagine life in retirement? What will you be doing? How will it feel? Can you make your dreams a reality?
Even if you don't know all the answers yet, it's good to know where you stand. If you're behind, there are plenty of ways to catch up. Working with a professional can help you identify a clear course and some simple next steps. It is important to start having these conversations now before you hope to retire.
How prepared are you?
The retirement score can help you assess your ability to cover your estimated expenses in retirement, even in a down market.2 There are 4 categories on Fidelity's retirement preparedness spectrum, ranging from 0 to 150:
Dark green: On target (95 or over). On track to cover 95% or more of total estimated expenses.
Green: Good (81–95). On track to cover most of your estimated retirement expenses.
Yellow: Fair (65–80). Not on track to sufficiently cover your estimated retirement expenses without modest adjustments to your planned lifestyle.
Red: Needs attention (less than 65). Not on track to sufficiently cover your estimated retirement expenses without significant adjustments to your planned lifestyle.
Source: Fidelity Investments® Retirement Savings Assessment, 2017.
Keep in mind that the retirement score is just a ballpark estimation—your individual situation may be slightly different. But if you get your score and you're "in the red," it can still be discouraging. You might be asking yourself, "Will I ever be able to retire?" Well, you're not alone—more than half of US households are at risk of not covering essential expenses in retirement, according to a recent Fidelity study of Americans' retirement preparedness.1
The good news: With a little planning, effort, and re-prioritizing, there are steps you can take to improve your score, no matter where you fall on the spectrum of readiness.
Start saving more now
Fidelity generally recommends saving 15% of pre-tax income toward retirement, which includes any money that your employer contributes to your account. This is particularly crucial for individuals who fall "in the red" on the retirement preparedness spectrum. However, if 15% is more than you can save, try to contribute at least enough to meet the employer match if one is offered. Every little bit counts.
Whether you can increase your contribution rate from 3% to 5%, or 10% to 15%, it is especially important to raise this percentage in the years leading up to retirement.
Revisit your current budget and put extra money in your retirement fund—whether that's your 401(k), 403(b), IRA, or another savings account. If you get a pay raise, annual bonus, or tax refund, consider adding some of that money to your retirement account to help fill the gaps. This might mean less money for the "fun" stuff like traveling, gift-giving, or going out to eat, but it can pay off in the future.
Of course, you will also want to make sure you are investing that money appropriately for your future. Invest too conservatively—with mostly low-paying bonds, for example—and your money may not grow enough to meet your income needs in retirement. Invest too aggressively, and you may be taking on too much risk of loss. Getting your mix of investments right is key to building your retirement savings. This is where a financial advisor can really help.
Want to see what a difference even a 1% increase could make for you? Use our interactive tool. See how a small change can make a big difference
Create a budget that accurately estimates your needs in retirement
It's difficult to know how much money you'll need over the next 30+ years. But it is critical to get a realistic estimate to help your money last through your full retirement. To make it easier, start with the amount you expect to spend over the next 3–4 years and make adjustments as needed.
Break down your spending budget into 3 major categories:
- Living expenses: mortgage or rent, utilities, car payments, groceries, taxes
- Medical expenses: health care insurance, co-payments, prescription and over-the-counter medications, personal care items, hospital visits
- Planned "extras:" flights to visit family members, holiday gifts, dining out, entertainment, creative hobbies
If you already know that you're not on track to cover all of your essential expenses in retirement, list the expenses in each category and see if you can reduce or eliminate any of them. For example, could you downsize your home? Or move to a less expensive location? Find more cost-effective health care coverage? Keep in mind that in retirement, your living expenses generally decrease, while medical expenses can increase.
Identify your sources of income
Even more important than the amount you plan to spend in retirement is the amount you'll have coming in each month. A smart plan includes income from multiple sources. These may include retirement accounts, pensions, annuities, Social Security, and other sources of guaranteed income.
Consider these steps:
- Know what you own. Track it all down—make a list of your retirement accounts, the account balances associated with those accounts, and the investment mix of each (the percentage invested in stocks, bonds, and cash).
- Make the most of Social Security. If you're able to wait until your full retirement age to claim Social Security, your monthly benefit will be higher than it would have been if you claimed at an earlier age.
Waiting to claim your Social Security benefit until after your full retirement age—either 66 or 67—will result in a higher monthly benefit. For every year you delay past your full retirement age, you get an 8% increase in your monthly benefit. That could be up to a 24% higher monthly benefit if you delay claiming until the maximum age, which is 70.3
Not sure how much you can expect from Social Security payments? Use our estimator tool
Consider working a few years longer
While it might not be the ideal solution, working a few years longer than previously planned is one of the most impactful things you can do to improve retirement preparedness. This gives you more time to build savings and decreases the number of retirement years you have to pay for.
If you're hunting for a new job in retirement, know that you're in good company. As longevity increases and living expenses continue to rise—especially housing and medical costs—many older Americans decide to continue working past the age of 65.
In fact, according to the US Bureau of Labor Statistics, nearly 19% of Americans age 65 or older work either part-time or full-time jobs—in other words, almost 1 in 5 adults age 65+ are employed.4 This proportion increased by over 34% between 2011 and 2016 and is expected to be the fastest growing demographic through 2024.5
The payback for working longer can be far more than financial too, even if finances are a primary incentive. "The activity of working, of using your brain, of interacting with others is extremely valuable for your health and your happiness," says Steven Feinschreiber, senior vice president of research in Fidelity Financial Solutions. "Research suggests that working can actually help you live a longer and healthier life."
Put your plan into action
Now it's time to make some moves—consider taking advantage of all of these strategies for even greater impact: saving more, making sure you're invested appropriately, creating a realistic budget, and working longer. Your actions today could help you take control of your personal finances and help put you on a path to a retirement that you imagine and deserve.
Next steps to consider
We can help you create a plan for retirement.
Create or modify an income plan in our Planning & Guidance Center.
Start your retirement with a spending plan that works for you.