You Probably Need to Save More

There’s a good chance you’re not saving enough for your future.

The U.S. personal savings rate was 6.6 percent in August, which is lower than it has been in recent months. (It was 7.4 percent in February, for example.) Consider, too, that Americans were saving more than 10 percent of their income for much of the 1960s and 1970s.

Since most of us will be relying on ourselves for much of our retirement income, it’s important that we sock away enough to live off of in the future. Don’t just assume that you’re doing enough. If you save, say, $5,000 per year for 25 years, that might seem like a lot, but if, invested, it grew at 8 percent annually, it would total close to $400,000, That would give you under $16,000 in your first year of retirement, if you made a conservative 4 percent withdrawal. Add that to Social Security retirement income (which recently averaged about $17,000 annually) and it still wouldn’t be a lot to live on.

Even worse, most people haven’t been socking away even $5,000 annually. About 24 percent of workers said they had less than $1,000 saved for retirement, according to the 2017 Retirement Confidence Survey, and a whopping 55 percent of workers had less than $50,000 saved.

Conventional wisdom has long suggested that you save and invest 10 percent of your income each year, but that’s not best for all. If you’re starting late or would like to be more secure in old age, aim significantly higher. You can try out different retirement saving-andinvesting scenarios at dollartimes. com/calculators/retirement.htm and fool.com/calculators. A quick way to roughly estimate how big a nest egg you need (assuming a 4 percent withdrawal) is to multiply your desired annual income by 25. Want $25,000 in your first year? Twenty-five times that is $625,000.

Save aggressively and invest effectively. The sooner you start, the more time your money will have to grow. Visit fool.com/howto-invest and to learn how to build wealth — or read “The Little Book of Common Sense Investing” by John Bogle (Wiley, $25).