Workers who grapple with concerns about their future finances generally understand some basics around the challenges ahead.
Commonly, Americans start with an employer-sponsored retirement savings plan such as a 401(k) that allows people to invest part of their salary in a tax-advantaged way.
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Some basic financial principles are immediately apparent. Debt, for example, is important to avoid. Health insurance must be obtained. People should invest wisely in a diversified portfolio.
Many people are worried about outliving their savings. Concerns about market volatility and inflation weigh on people's minds.
To confront these fears and get a handle on how to approach retirement planning, there are some specific ways to implement an effective strategy.
In a recent exclusive interview with TheStreet from the New York Stock Exchange, retirement expert Robert Powell explained his views on the subject.
TheStreet host Conway Gittens asked Powell about the big issues people should be talking about.
Powell said that he believes there is one thing that Americans get wrong about retirement. And that involves not getting started on saving early enough.
Start saving for retirement and 401(k)s as early as possible
"The very first thing that people get wrong about retirement is the need to start saving as early as possible," Powell said. "The longer you wait, the less you'll be able to take advantage of the power of compounding and the more you'll have to save later in life."
Powell offered some further advice for those in the early stage of their careers.
"So, when you enter the workforce, you should shoot to save at least 15 percent of your income," he said. "And then you should try to hit certain benchmarks as you go through your work life. So at age 35, for instance, you should have maybe one to one-and-a-half times your salary saved in your 401(k) or your IRA, and that by the time you hit 65, you should have somewhere between seven-and-a-half and 13.5 times your salary saved for retirement."
"So think about starting early and then think about setting these goals for yourself as you hit certain ages," Powell added.
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Gittens asked Powell about how people should scale up their savings amount as they age.
"Well, in terms of scaling up, I would think about it this way," Powell said. "I mentioned the benchmarks. One of the things that you need to also consider is if you're behind the eight ball in terms of your savings, you really need to think about, well, maybe I need to save more than 15 percent."
"So, for instance, I'll give you a worst-case example," he continued. "Let's say you are age 60 and you haven't saved a nickel for retirement. Well, at that point, when you hit age 60, you're going to need to save at least 33 percent of your income to make up for what you didn't save when you were 20, 30 and 40 years old."
Powell suggested an alternative approach that could result in a less stressful situation.
"On the other hand, if you start saving when you're in your 30s, you will be able to save at a moderate percentage that allows you to, one, fully fund your retirement, but also be able to enjoy the things in life that you want: to vacation here and there, saving for college, paying down student loans, buying a house, buying a second home," Powell said.
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Retirement savings and Aesop's fable
Powell referred to an old story with a simple message to add some context to retirement planning.
"One of the things I like to say is, you know, everyone should go back and reread Aesop's fable of the ant and the grasshopper," he said. "The ant set aside food for the winter months when there would be no food, and the grasshopper didn't and went begging the ant for food during the winter months."
"We need to be more like ants than grasshoppers," Powell suggested. "As you think about how I can save for retirement, but also how I can enjoy life, a gradual approach takes the sting out of actually setting the money aside."
Powell then expanded on this with attention to financial specifics in the modern world.
"You might not be able to save 15 percent of your salary in year one, but you might be able to save 6 percent," he said. "And then assuming that your employer matches up to half of that. So you'd be saving at a rate of nine percent, which is a really good starting place for many people who might be in their twenties and who might be trying to pay down their student loans, trying to enjoy life if they're living in New York City or Austin or wherever they might be."
Related: The average American faces one major 401(k) retirement dilemma
Powell explained a strategy that involves incremental steps.
"What you would do is you want to set your 401(k) plan on something called auto escalation," Powell said. "So every year it would escalate from, say, six percent to seven, seven percent to eight."
"And those escalations would be painless, in part because, with hope, you've had a salary increase and that one percentage increase in your salary deferral rate won't put a big dent in your standard of living," he continued. "So I think that's one thing to consider is auto escalation."
Powell added a few more specifics to consider depending on one's financial ability.
"And also if you can afford it, every time you do get a pay raise, reevaluate how much you're saving," he said. "Maybe you'll be able to save from 6 percent to 8 percent or from, say, 8 percent to 10 percent."
"Be mindful about the money that's coming in, and how you're allocating it between savings and enjoyment and essential expenses."
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