It can be daunting to get back on track once you’ve fallen behind.
That will be a necessary task for millions of American workers who simply do not have enough saved for retirement. Research from Boston College shows a $7.1 trillion retirement-savings shortfall among U.S. households, with half of them facing a lower standard of living once they stop working.
What—if anything—can you do to catch up? To find out, Bloomberg News interviewed retirement experts and planners across the country. This is what they told us, ordered for those closest to retirement (and in most need of a lifeline) to those furthest from it.
And to figure out where you stand, try Bloomberg’s WealthScore tool to calculate your retirement preparedness and other measures of financial health.
Near Retirement
Ideal savings: Fidelity Investments suggests retirees should try to have at least 10 times their salary saved to retire at 67. That rough guideline assumes the person saved 15% of their income annually beginning at age 25, including employer matching contributions to a plan like a 401(k), has inflation-adjusted wage growth of 1.5% a year, and invests more than 50% of their savings in stocks over their lifetime.
If you’re retired already or planning to retire soon, grappling with a savings shortfall can feel beyond stressful. But advisers say doing the math and making some hard choices can help.
Savers who are the most at risk from a volatile market are those within five years of retiring up to those about five years into retirement. Needing to regularly sell stocks into a down market early in retirement can shrink a nest egg so much that the damage is impossible to repair, even if markets rebound later.
To limit the hit, retirees can lower the amount they withdraw from retirement accounts by pulling money from short-term bond holdings rather than from equities, or by doing part-time work to lessen the need to draw on savings.
For bigger spending needs, a home equity loan may be a good idea, said wealth adviser Melissa Weisz of RegentAtlantic. Normally, you wouldn’t want to take out a variable-rate loan when interest rates are rising—that’s usually the time to pay off any variable-rate debt, and credit card debt, before rates go even higher. But it may make more sense than selling stocks into a down market, and the loan can be paid off once markets recover, Weisz said.
Something all retirees can do is plan ahead in order to make the most of Social Security. Whatever your age, it’s a good idea to create an account on myssa.gov. For one thing, you can make sure that you are being accurately credited for your annual earnings. It’s also enlightening to play around with the calculator on the site to see what your monthly benefit check would be if you claimed early at age 62, at full retirement age (66 or 67, depending on when you were born), or if you wait to claim until age 70.
For those who can swing it, spending down taxable savings in order to claim Social Security benefits as close to age 70 as possible is a good move, said Alicia Munnell, director of Boston College’s Center for Retirement Research. For every year someone can wait from their full retirement age to age 70, their benefits increase by 8%. Also, if one spouse will have a much higher monthly benefit, it could be smart to wait until they turn 70 to claim it so that the surviving spouse can get that higher payout for life.
Mid-Life
Ideal savings: Fidelity, which describes its guidelines as “aspirational,” estimates that a 50-year-old saver planning to retire at 67 should have about six times their salary saved at this point if they want to maintain their lifestyle in retirement.
Most workers tend to hit their peak earning years at or just after midlife. This is also when many people look at their retirement portfolios and realize they haven’t saved enough. Advisers say people in this situation can help themselves by aggressively saving more, staying on top of their portfolios, and recalibrating their expectations for when and how they might retire.