Ready or not, your retirement is approaching. And chances are you won’t be ready, warns HSBC.
But the world’s second-largest bank offers four giant steps to help you prepare for retirement in its new report, “The Future of Retirement: A balancing act.”
More than half of American workers say they are too far in debt to save adequately for retirement, says the HSBC study, which surveyed 16,000 people online in 15 countries, including 1,000 in the United States. About four in 10 American workers said they didn’t know how much to save, and many didn’t know how soon to start saving.
In the video below, Money Talks News savings expert Stacy Johnson explains why many of us will find it more challenging than our parents did to have a comfortable retirement. Watch the video and then read on for tips on retirement savings.
“What we found is that people haven’t taken the time to truly understand what they need for the future,” Michael Schweitzer, head of sales and distribution for group wealth management at HSBC, told CNBC. “For example, almost 75 percent of people in retirement have told us that they didn’t realize that they had a shortfall until they were actually in retirement and that’s one of the critical issues we’re trying to draw attention to.”
The global economic downturn dented savings efforts around the world, Schweitzer said. People raided their retirement funds and accumulated debt during the financial crisis.
In the United States, the HSBC report says, many working-age people stopped or reduced saving for retirement.
How much is enough?
Many retirees told HSBC their annual household incomes were well below what they deemed necessary for a comfortable retirement: $72,500. More than two in five retirees said they live on a household income of less than $65,000 a year.
More than one in 10 working-age people told HSBC they will never be able to fully retire; around three in five said they cannot afford it, and three in 10 believe they will not be able to maintain a comfortable lifestyle.
Steps toward financial security
The HSBC report suggests these four steps:
1. Start saving early:
Close to two in five retirees say that starting to save earlier would have improved their standard of living in retirement. More than half of retirees and four in 10 pre-retirees said they feel insufficiently prepared for a comfortable retirement because they didn’t start early enough. Retirement can seem a long way off when you are young. Nevertheless, it is crucial to start making retirement plans as early as you can.
2. Know how much you need:
People will need to fund almost 20 years in retirement. Around two in five retirees said they did not realize how much they needed to save for retirement. Start thinking about the kind of lifestyle you want when you retire and how much you will need to fund it.
To get an idea of what you need to shoot for in retirement savings, check out these tips (and find out why retirement calculators make us cringe).
Study the retirement savings landscape in these stories about 401(K) plans (and how to know if you’re being charged unreasonable fees), IRAs and Roth IRAs, and some of the less common options, such as ESOPs (employee stock ownership plans).
3. Refill the pot:
Around a third of working-age people said the global economic downturn had a direct and significant impact on their ability to save for retirement. Also, around one in four said losing a job, seeing a significant drop in earnings and getting into debt/having severe financial difficulty affected their retirement saving. With the worst of the global economic downturn behind us, start looking for advice on how to replenish any depleted funds.
4. Expect the unexpected:
More than one in 10 working-age people said illnesses or accidents kept them or their spouses from working, cutting into their abilities to continue saving for retirement. Consider what could happen and how this will impact your financial planning.
Schweitzer told CNBC that starting to save around or before age 30 helps ensure you have better financial security in the future, but “it’s never too late to start.”
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