Even young people have gotten the message that getting ready to retire is a big job. One survey found that more than four in 10 millennials are stressed about running out of money in retirement. For those with decades of career ahead, the cure is straightforward: Take steps toward hitting the right savings number, typically around 15% of salary if you are starting in your early thirties. Nearer retirement, the question turns to how you’ll generate income for 30 years or more. Ease some of your angst with the knowledge that you’ll have options to help you make your money last. Here are three of them.
Try the 6% Solution
That 15% may feel tough, especially if you are also building an emergency fund. If you have a 401(k), start by saving enough to get your full employer match. That’s often 6%. From there, you can get to 15% quickly, says Stuart Ritter, a financial planner at T. Rowe Price. Some plans offer an auto-escalation option that increases contributions with each raise. Or make a ritual of going up another 2% on your birthday. With an employer match of 3%, you’ll hit 15% in three years.
Be a Flexible Spender
A new T. Rowe Price study finds six in 10 recent retirees who had access to a 401(k) say they’re living as well as before they retired, even though only a third of pre-retirees expect that. Early on, retirees in the study lived on an average of 66% of pre-retirement income, not the 80% many online planning calculators assume. Fact is, after retirement some big costs go away. The kids are out of the house, and you may down-size or live mortgage-free.
Adjusting spending to market conditions helps a lot too. A common withdrawal strategy is to take out 4% or so of savings your first year of retirement, then raise that with inflation. Forgoing the raise only after bad market years can greatly improve the odds of your money lasting. “Take the vacation in good years,” says Kate Warne, an investment strategist at Edward Jones.
Calculator: How much should I save to reach my goal?
Keep Social Security in Perspective
One more source of agita: headlines warning Social Security will “go broke” in 20 years. While it’s true the trust fund will run out if Congress doesn’t raise taxes or trim benefits, retirees would still be paid 75% of earned benefits thanks to payroll taxes coming in. In reality any changes would most likely be phased in, with less impact on those nearer retirement.
Adapted from “Never Worry About Money Again,” by Carla Fried, Ian Salisbury, and Taylor Tepper, which appeared in the July 2015 issue of MONEY magazine.