Money advice that’s financially sound may not be psychologically sound
Maybe we should retire this advice.
The most common retirement savings advice seems so far from achievable for most people that many get freaked out and shun saving even close to enough, experts say. Consider: One of the most popular pieces of advice is that, to have enough money for retirement, you need to have saved 2x your annual salary by 35, 4x at 45, 6x at 55 and 10x by 67; that would mean that a person who made say, $75,000 a year their whole lives, would need to have saved $150,000 by age 35 and $750,000 by 67. Another popular benchmark is that you should have saved at least $1 million or more by the time you retire.
The reality, of course, is much different. The median retirement savings for someone in their 30s is just $45,000 and in their 60s just $172,000. Even more dire: Nearly half of families have nothing at all saved for retirement, according to the Economic Policy Institute.
Part of the problem may be that high savings goals like these simply freak people out — so rather than motivating them to save, these benchmarks make them throw up their hands in defeat. “We’ve all been hearing that you need over a million saved for retirement or arbitrary amounts such as your yearly salary by age 30 or 3 times your yearly salary by 45. Figures this large feel like a monumental task, which is perfect environment for procrastination,” says Jessica Cline, a psychotherapist and financial therapist at Cline Counseling and Consulting.
Kelley Long, a certified public accountant, financial planner and member of the American Institute of CPAs Consumer Financial Education Advocates, says those kinds of numbers can absolutely stunt saving. “I personally really dislike when ‘experts’ say things like you need a certain dollar amount by a certain age. I think it absolutely deters people from saving, particularly if they’re still struggling with student loans, buying a house, getting married and all the other adulting and things we want to do in our 30s.”
Research on goal setting appears to back that up. When goals seem too lofty, people fail to reach them. Indeed, for the millions of people drowning in debt (one in 10 Americans now has $100,000 or more in debt, no even including their mortgage), the idea of ever being able to save even $500,000 probably seems too daunting to even try — especially when paired with the common advice that the biggest key is to start saving early (when you’re likely earning very little and juggling student loans).
Instead, it might be more productive for America’s retirement savings if experts — rather than tout lofty goals like $1 million or 10x your salary — simply gave steps broken down into tiny chunks that each step seem doable. Here are a few:
Get the employer 401(k) match at work. If your employer matches a part of what you put into your 401(k), put in at least up to what they match. If you aren’t sure if they match, call HR and ask. If you aren’t enrolled in the 401(k) plan, you can do so at open enrollment time, which is typically in October – December.
It’s OK to up your retirement savings by just 1% a year if that’s all you can manage. Ideally you want to save about 15% of your income into retirement funds, says Long, but it’s OK if you can’t get there yet thank to debt or other circumstances. “If it takes them 10 years to get there by adding 1% per year (or 15 years if starting from 0 with no match), that’s fine but it’s a great habit to start sooner than later,” says Long.
Think in terms of transitions. Can’t save that much now? Think of when you might be able to and make a goal of doing it then. “When will the car be paid off? Can I use the money allocated to a car loan to boost savings?” explains Mitchell C. Hockenbury, a certified financial planner at 1440 Financial Partners.
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