Quick, how much do you have saved for retirement? If you’ve got a ballpark figure in mind, hip, hip, hooray!
Nearly 1 in 4 Americans don’t have a clue how much they have socked away in their retirement accounts, according to anew report from the TIAA Institute.
This finding is jaw-dropping because knowing what you’ve set aside in retirement accounts today directly impacts everything else: how much you’re saving, what you invest in, when you can retire, and how you will live in your golden years.
TIAA found that nearly 3 in 10 Black Americans and 4 in 10 Latino Americans who have not yet retired don’t know where their savings stand.
“People know retirement is important, but they’re not paying nearly enough attention,” Surya Kolluri, head of the TIAA Institute, told Yahoo Finance. “Maybe they think it’s too far off in the future to worry about. Maybe they’re too distracted with day-to-day events that are more urgent at work and home. Maybe they think they’re saving enough for their employers to match their contributions, and that’s all it will take.”
Read more: Retirement planning: A step-by-step guide
Or maybe they don’t know how many years they might have ahead of them. He added that a lack of longevity literacy — knowing how long you are likely to live — can stop people from paying attention to how much they’re saving.
While nearly two-thirds of Americans have at least some money invested in retirement accounts such as 401(k)s, traditional individual retirement accounts (IRAs), Roth IRAs, and pensions, less than half of those who are not yet retired are “very” or “somewhat” confident they will retire when they plan to, according to the TIAA report; 15% don’t plan to retire at all. The research is based on a nationally representative sample of 1,684 adults aged 22 to 75.
Well, if you don’t know how much money you are putting away, how can you feel assured that you will be able to retire in your own timeframe and live happily ever after?
Ramp up to saving 15% of income per year
Even if you’re years from retiring, understanding where you stand financially helps you calculate what percentage of your salary to squirrel away right now and if you need to bump up your savings rate.
Saving 15% of income per year (including employer contributions) is an appropriate savings level for many people, Roger Young, senior financial planner and certified financial planner at T. Rowe Price in Baltimore, told Yahoo Finance. Someone at age 25 might start saving 6% and ramp up savings by one percentage point each year to reach 15% in their 30s, he added.
Having a sense of what you have stockpiled to date colors your choices regarding how to invest your retirement funds right now. Depending on your age and risk tolerance, for example, you might increase the share of equities in your account to eke out potentially higher returns over time.
The size of your balance also impacts how much longer you’ll likely need to stay on the job full time, or if you want to continue working in some fashion even after you retire from your primary employer.
Account balances ‘skew low’
Even among those who can estimate savings, account balances skew low: Half have less than $250,000 saved, according to TIAA’s research. Troubling, too, is that 1 in 8 Americans say they are not sure how they will fund retirement.
Talk about crying uncle. “Many pre-retirees and retirees are fearful about running out of savings in retirement — and given their low savings rates, many are indeed at risk,” Catherine Collinson, CEO and president of Transamerica Institute and the nonprofit Transamerica Center for Retirement Studies, told Yahoo Finance.
Most people simply don’t have a solid grasp of their financial situation, Collinson said. Fewer than 1 in 4 have a financial strategy for retirement in the form of a written plan, according to a recent TCRS report.
“Many are taking the ostrich approach, which could lead to unwelcome surprises and even greater challenges down the road,” she said.
So how much should you be saving? In general, you should aim to have 10 times your pre-retirement income saved by the time you reach age 67, according to Fidelity. Someone with, say, a $100,000 salary should have $1 million saved by the time they retire. To break that down, Fidelity recommends that by age 30, you have the equivalent of one year’s salary saved. By age 40, 3x your income. By age 50, 6x your income, and by age 60, 8x your income.
“The bottom line is that people just aren’t paying attention, and it’s a big reason why our nation faces a retirement crisis,” Kolluri said.
It’s puzzling. It’s not that people don’t look at their retirement account statements. Most people I know do.
“People are unaware of their retirement savings because they don’t understand what that means for their retirement,” Steve Parrish, adjunct professor of advanced planning and co-director of the American College Center for Retirement Income, told Yahoo Finance.
“They see a number, but they don’t retain it because it doesn’t tell them anything. A 401(k) statement will vary in value daily, so why bother? It doesn’t answer the question of what age they can retire and how much they will receive in income.”
Check periodically and use all available data
The federal government has been trying to do something about this general lack of understanding. Social Security benefit statements have recently been revamped to show the estimated income a participant will receive if they file for benefits at age 62, 63, and so on up to age 70.
Employers who offer 401(k)s and other defined contribution retirement accounts are now required by law to include two illustrations of a participant’s account balance converted into a lifetime income equivalent — one as a single life annuity (for just the participant) and another as a qualified joint and survivor annuity (for the participant and spouse) — at least annually.
“These statements are trying to give Americans a heads-up as to what their Social Security and employer plans may pay them as an income in retirement,” Parrish said.
The goal isn’t to obsess over your account’s daily ups and downs — saving for retirement is a long game. The point is to be informed about your own situation so you can adjust as needed.
“Periodically checking to see where you stand is good. “The next important step is, if you are falling behind, taking action so you can get caught up,” Young added.
Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist, and the author of 14 books, including “In Control at 50+: How to Succeed in The New World of Work” and “Never Too Old To Get Rich.” Follow her on X @kerryhannon.