Putting 6% of your income toward retirement could still leave you coming up short. Here's what to do instead.

By Jessica Hall

'About 40% of America is going to run out of money before they die'

There are a lot of numbers when it comes to retirement, and many of them are daunting or confusing. The overcomplication of retirement savings rates and target investing amounts leaves many people overwhelmed and less likely to save.

Almost half (48%) of Americans who are not yet retired say they don't have enough saved to allow them to retire when they want to, according to a new study by insurance company MassMutual. Among working Americans who are contributing to retirement accounts, half are putting 6% or less of their income toward retirement, MassMutual found.

Why are people stuck at this number? And how much should they actually be saving?

If you ask different financial experts, you'll get different answers - which only adds to the confusion.

"The optimal amount will vary from person to person. It varies on how old you are, when you want to retire, how you're investing, how long you think you may live, what lifestyle you live. There are a lot of unique factors," said Katherine Tierney, senior strategist for retirement at Edward Jones. "The minimum amount you should be investing is to set aside [enough] to earn at least the full employer match."

MassMutual found that 55% of nonretired Americans say they contribute enough to their employer retirement plan to maximize their employer match.

And while that's a good start, it's probably not nearly as much as they should be saving. All the complicated factors aside, Tierney said investors should set aside 10% to 15% of gross income, including their employer match.

Other experts had slightly different numbers.

"They're going to be falling short. People need to save at least 15% of their income for retirement, or they'll be significantly underfunding their later years.," said Bruce Tannahill, director of estate and business planning at MassMutual. "It will impact what kind of retirement you can have and what you can do in retirement. A lot of people will almost surely be behind the eight ball."

But it's understandable that many people aren't in a great position, he said: "Younger people don't save enough for retirement because many are dealing with massive student loans, housing costs, the cost of living. Even squeezing out 6% is quite difficult."

Meanwhile, Fidelity Investments recommends saving 15% of annual income, including an employer match. That assumes a person saves for retirement from age 25 through age 67.

"About 40% of America is going to run out of money before they die. The No. 1 fear in America is running out of money - feared more than dying," said Joshua Gotbaum, a guest scholar in the economic studies program at the Brookings Institution.

"The ideal percentage savings should be higher than it is right now. But the thing about financial advice is most people never get it and never take it," Gotbaum said. "Every firm has a savings calculator, and they're all well intentioned and they're all ignored by 90% of the population."

Gotbaum has an easy solution to the overcomplication of retirement-industry advice: Count your figures and invest that much. Ten fingers, 10% savings rate.

"The trick to this is that if it's not simple, it's not done. Unless you have a rule that's simple enough to use, they're not going to do it," he said.

Read: The new math of saving for retirement may boil down to this one, absurdly simple rule

Gotbaum explained why so many people are stuck at the seemingly random 6% savings rate.

"There's a reason for that rate. The typical employer match says we'll match 50% up to 6%, so that's the number that's in people's minds - 6%," Gotbaum said. "If you do a 50% match for 6%, your total is 9%. Everyone agrees that's too low. So the 'count your fingers and set aside that' effort is to get people to aim higher - for 10%."

"A simple rule is better than a complicated rule. A simple rule has a good chance of being followed, and a complicated rule has no chance of being followed," Gotbaum said.

But the reasons people don't contribute as much as they should toward their retirement are varied, Tierney said.

Lack of access to a 401(k) plan plays a huge role for many, Tierney said. Nearly 57 million working Americans do not have access to a retirement plan at work, according to AARP.

"Inertia plays a part. It takes time and work to set aside money for retirement, and many people are not comfortable with investing and making those choices," Tierney said. "And then there's the reality that a lot of people are balancing a lot of financial goals."

She added: "Getting started is really the most important thing, and getting that time in the market. Whether it's $25 or $50 a month to start, just get started."

The minimum amount needed to receive the employer match is a good place to start, and then workers can increase the amount they save by 1% or 2% a year, throughout their career, in step with pay raises.

"Once people get to a certain point in their personal life and career, a lot of people save more money, but they've lost the benefit of starting early and compound interest," Tannahill said. "People see that they're falling short and take more risk - take too much risk - with their retirement investments. And that's not good either."

-Jessica Hall

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09-21-24 1110ET

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