According to recent data from the annual Retirement Confidence Survey, many workers do not have the confidence that they will have enough money to retire. When you consider the average savings rate being reported by workers, it’s easy to see why.
The Retirement Confidence Survey is conducted annually by the Employee Benefit Research Institute (EBRI). The 2012 survey was the 22nd annual survey, and the data are based on 20 minute telephone interviews with 1,262 individuals (1,003 workers and 259 retirees) aged 25 and older within the United States.
According to the 2012 Retirement Confidence Survey, only 14% of workers were “very confident” about their ability to live comfortably in their golden years which is down from 27% in 2007. 38% were “somewhat” confident, but 47% had little to no confidence.
A major reason for this lack of confidence displayed by workers surveyed likely has to do with a lack of saving for the future. According to the 2012 Survey data, 60% of workers report that they and/or their spouses have less than $25,000 in total savings and investments (this excludes their home and any defined benefit plans). 30% of those workers have less than $1,000 in savings.
Over half of workers (56%) said they had not taken the time to do any calculations regarding how much they would need to save for retirement which seems to be reflected in the low savings rates also reported.
But how much money would somebody realistically need to save to retire comfortably? One way to come up with a rough estimate is the 4% rule. While only a basic guideline, it can provide some idea of what one might need in retirement. The 4% rule is computed as follows: (estimated annual retirement expenses) X 100 ÷ 4 = (How much money you need to have saved)
So, for example, say your expected annual expenses in retirement are $40,000. You would need a savings of $1,000,000 based on this principle. The formula would look like:
($40,000 x 100) ÷ 4 = $1,000,000
Obviously, everybody will have their own unique situation and circumstances, so talking to a qualified financial advisor and/or using more detailed retirement planning calculators would be in anybody’s best interest to properly prepare for retirement. Many of the major investment companies offer retirement calculators to help workers plan for retirement. T. Rowe Price and Vanguard are a couple of examples.