Decoding Retirement: Middle-Income Households Increase Retirement Savings

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Despite concerns about a retirement crisis in the US, a Principal Real Life Retirement Journeys survey reveals that middle-income households (earning $50,000 to $100,000 per year) are setting aside approximately 8% of their income for retirement.

With employer matching, the savings rate can increase to 12%, according to Her Money podcast host Jean Chatzky. This aligns with the 10% to 15% range recommended by retirement experts.

Chatzky advises, "Aim for 15%. Savings over an extended period can provide 75% to 80% of pre-retirement income when combined with Social Security."

The overall savings trend is positive, with Chatzky noting the improvement compared to studies showing low savings rates and low emergency fund balances.

How Much to Save for Retirement?

Aim for approximately 10 times your annual salary by retirement. For example, if your salary is $100,000, you should have $1 million earmarked for retirement.

Compounding returns can make a significant difference over time. Starting early is crucial, and Chatzky highlights the benefits of automatic enrollment and auto-escalation in 401(k) plans.

Maximize Retirement Savings

Utilize all available retirement accounts, including Roth accounts, traditional IRAs, 401(k)s, health savings accounts (HSAs), nondeductible IRAs, 529 plans, and taxable accounts.

Overcoming Barriers to Saving

Chatzky identifies high expenses, low income, and debt repayment as challenges faced by non-savers.

* Control Spending: Practice "backwards budgeting" by tracking expenses and identifying areas for savings, such as food and subscriptions.
* Manage Debt: Improve credit scores to qualify for lower interest rates on credit cards and consider debt consolidation or balance transfers.

Conclusion

Middle-income households are making progress in saving for retirement. By maximizing savings and overcoming challenges, individuals can secure their financial future.