An endless number of studies have documented people’s general lack of financial preparedness for their later years. As just one example, the Employee Benefit Research Institute (EBRI) says that among workers age 55 and older, 54% have less than $100,000 saved for retirement.
No amount of finger-wagging lectures seems to move the savings needle. The most effective solution has been to take the decision to save out of people’s hands — the growing trend among corporations to automatically enroll workers in 401(k) plans. But even that isn’t enough since the default automatic savings rate is typically less than 5% of salary and most workers never increase that amount.
If you realize you may not be doing enough to prepare for the future, but you’re having a hard time saving more, there’s a step you can take will probably help. And it’s pretty simple. Use a free online calculator to run some numbers. It seems to have a motivating effect.
According to the EBRI, less than half of all of today’s workers have taken that step, but those that have tend to set higher savings goals and feel more confident about their financial future.
Schwab offers one of the simplest free online retirement calculators. In just a few minutes, you can see whether you’re on track toward a solid financial future, and you can easily change certain assumptions to see what it would take to make the numbers work better.
Before giving it a try, it’ll be helpful to know your estimated Social Security benefit. Find out by creating an account with the Social Security Administration.
Keep in mind that different online retirement calculators use different assumptions. So, for extra credit, try at least one more, such as the T. Rowe Price Retirement Income Calculator. You’ll have to register to use it, but you do not need to be a paying customer.
Have you ever used a retirement planning calculator? If so, what impact did it have on your retirement savings?
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