CEO: You need to start saving for retirement ‘right after high school’

Americans must squirrel away money as soon as they reach 18 – or 22 – if they want to guarantee a comfortable retirement, according to one expert.

“You’ve got to start sooner than you probably thought,” Dan Houston, CEO of investment firm Principal Finance Group, said in a recent interview with Yahoo Finance. “You need to start right after high school or college – whenever you find yourself in the workspace.”

The second key move, Houston said, is to sock away 13% to 15% of your annual income into your 401(k) or other retirement accounts. That’s enough to eventually allow you to replace 80% to 85% of your income that you will need once you retire.

Houston’s advice comes at a time when almost 3 in 5 U.S. adults say they need to catch up on their retirement savings, and only 1 in 5 max out their 401(k) or IRA contributions.

LONG BEACH, CA: Americans need to start saving for retirement as soon as they graduate from high school or college, according to one expert. (Photo: Brittany Murray/MediaNews Group/Long Beach Press-Telegram via Getty Images)

“We have more capacity to save than we realize,” Houston said, suggesting that a Retirement Tuesday should follow the holiday spending that occurs on Cyber Monday. “There’s a reason that Amazon warehouses are pumping out so many items.”

Retirement misconceptions

People underestimate how much they will need in their post-work years, Houston said. Many end up spending more than 100% of what they made in their last working year immediately after they retire.

“It’s usually pent-up demand for travel or buying a motorhome or something of this nature,” he said, “and then it starts falling away.”

In later years, retirees have to contend with expensive prescription drugs and hospital stay costs. Current 65-year-olds can expect to pay $285,000 on health care during their retirement, with 15% of their living expenses going toward medical-related costs, according to a recent study from Fidelity.

CHATHAM, MA: Health care costs in later years can take up a good chunk of retirement income. That's why people need to save 80% to 85% of their income to retire comfortably. (Photo: John Tlumacki/The Boston Globe via Getty Images)

People are also living longer. “Those last years are the most expensive years,” Houston said.

To save enough, Houston recommends a balanced portfolio. That’s “what wins the race in the long run,” he said, noting that Americans should avoid being stock pickers.

“Trying to pick winners and losers for the next decade or half a decade,” he said. “That [is] a very challenging effort for most Americans.”

Dhara is a writer for Yahoo Finance. Follow her on Twitter @dsinghx.

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