Retirement savings: Half of Americans still can't cover essential expenses, study shows

Retirement FOXBusiness

Millennials underestimating retirement costs

'Retire Inspired' author Chris Hogan on the importance of saving for retirement and a study showing only 39% of Americans have $1,000 saved for emergencies.

While a greater number of Americans are doing a better job saving for retirement, half still won’t be able to cover their essential expenses if they stay the course on their current financial paths.

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Fidelity found that about half of Americans were on track to cover about 80% of essential expenses in retirement, which is a sharp increase in preparedness since 2006. Keith Bernhardt, vice president of retirement at Fidelity, said a shift from a pension-dominated environment to one where individuals are more responsible for their own savings has helped drive this trend.

The average savings rate has increased to 8.8%, up from 3.6% in 2006.

Still, that means half of Americans are not saving enough to cover their essential expenses.

While Bernhardt noted that some people’s financial situations don’t allow them to contribute more to their savings accounts, with others, it comes down to planning.

“People are a little bit nervous about the [retirement] question, they’re not necessarily engaging and thinking through a plan. If they did engage a bit, they could see the power of small changes,” he said.

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One small modification that could make a big difference involves adjusting your investment mix. Fidelity found that nearly half of millennials, for example, had very conservative asset allocations, despite being at a stage in their life when they can afford to take on more risk.

Bernhardt also noted that even for individuals as young as 35, saving an extra $50 per week could make a substantial difference over time.

“Folks are not necessarily up to speed on the power of letting your money grow over time,” he said. “One way to think about it is, many people are very serious when it comes to paying bills. They’ll treat bills as an essential expense … they should be thinking about their retirement … [like] paying a bill to themselves. It should be something they try to make as a mandatory thing.”

Finally, for those closer to retirement, it could be worthwhile to consider delaying retirement, if possible, Bernhardt said. If not, you may need to reevaluate the type of lifestyle you can afford.

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