Americans Are Falling Behind on Retirement Savings. Here's How to Catch Up

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Americans’ retirement hopes have plummeted in recent years. Among non-retired Americans, only 43% think that they will have enough money to live comfortably in retirement, according to a Gallup poll. That’s the lowest percentage since 2012, and it has dropped by 10% in just the last two years.

Unfortunately, the numbers are even worse for many demographics. Gallup also found that:

  • Women are far less likely to expect to retire comfortably. 36% of non-retired women think they’ll have enough money to retire comfortably, compared to 50% of non-retired men.
  • Lower- and middle-income Americans aren’t on track for retirement. 19% of lower-income and 36% of middle-income Americans expect to retire comfortably. Among upper-income Americans, 65% expect to retire comfortably.

Considering inflation and limited wage growth, it’s understandable why so many people have trouble saving for retirement. If you’re not comfortable with your current level of retirement savings, there are several great ways to catch up.

Maximize incentives and tax savings

The first thing to do is make sure you’re getting all the “easy money” you can. Here are a few of the most common examples:

  • 401(k) contributions: You can make up to $22,500 in tax-deductible contributions to a 401(k) plan in 2023. If you’re 50 or older, you can contribute up to $30,000. This allows you to save for retirement and lower your income taxes.
  • A 401(k) match: Many companies will match you up to a set amount on your 401(k) contributions. If you have a 401(k) company match available, make sure you contribute enough to max it out. Check with HR if you’re not sure how much you need to contribute to get the full match.
  • IRA contributions: Individual retirement accounts (IRAs) are another way to reduce income taxes while saving for retirement. The IRA contribution limit is $6,500 in 2023 and $7,500 if you’re 50 or older.

In addition to traditional 401(k) and IRAs, there are also Roth plans available. You aren’t able to deduct contributions to these from your taxes, but they offer tax-free withdrawals in retirement. Recent data shows that 88% of employer 401(k) plans offer a Roth 401(k) option. And online stock brokers that offer IRAs also typically offer Roth IRAs.

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Look for a new job or career path

Income plays a huge role in how well you can save for retirement. That’s why there are so many more high-income Americans who think they’ll have enough money for retirement, while a much smaller percentage of lower- and middle-income Americans feel the same.

Be aggressive about increasing your salary. Ideally, look for ways to earn more every year. The more you earn, the easier it will be to build your retirement nest egg.

If you’re happy where you work, you may want to look for promotion and raise opportunities there. But switching jobs or even career paths tend to lead to higher pay increases.

The median worker who changed jobs experienced a real pay increase of 9.7%, according to a Pew analysis from April 2021 to March 2022. Real pay refers to wages after accounting for inflation. The median worker who remained in the same job saw their real pay drop by 1.7%. That’s a difference of 11.4% more for changing jobs compared to staying in the same job.

Don’t overspend on your largest expenses

One of the reasons some people don’t like to budget is they think they need to micromanage every expense. That’s usually not necessary. It’s not a big deal if you want to have, say, both Netflix and Max (formerly HBO Max). That’s an extra $16 per month, so it’s not going to make or break you.

A better way to budget is to focus on keeping your largest expenses under control, and reducing them when possible. For most people, there are three major household expenses:

  • Housing (your rent or mortgage)
  • Transportation (most importantly, your car payment)
  • Food (groceries and dining at restaurants)

People get into trouble when they rent or buy a home they can barely afford. Or get a loan for an expensive car. Or go out to eat all the time.

If you’re spending too much in any of these areas, you’ll need to cut back elsewhere — like your retirement. If you keep your housing, transportation, and food spending to reasonable amounts, you’ll have more money to save for the future.

It can be scary to think that you won’t be able to live comfortably in retirement. However, this is also something that’s largely in your control. If you make the most of retirement plan options, maximize your earning potential, and keep your big expenses in check, you could start putting a lot more money into your retirement accounts.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.

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