Most Americans Have Saved Very Little for Retirement
The truth is that very few Americans have saved a million dollars by the time they are ready to retire. In fact, the majority have saved less than a hundred thousand. That does not mean they cannot retire, or even that they will have a miserable retirement. There are many ways to make the numbers work for you.
Maximize Your Social Security Benefits
First of all, the average retiree currently only gets about $1100 - $1200 in Social Security benefits. That does not need to be true for you. If you work until your full retirement age of about 66, you should be able to increase your retirement income to at least $1800 a month, and perhaps as much as $2500 a month, depending on your past earnings. If you are married, your spouse will be able to get at least half that amount, even if your spouse never worked. Therefore, even a single-income couple could have an income from Social Security of about $2700 - $3600 a month, without a penny of interest income from savings.
Compare Your Retirement Income to Your Retirement Expenses
Once you know how much you will receive in Social Security benefits, compare that amount to what you currently have in monthly expenses.
Let's say that you currently spend about $4500 a month, and you will receive $3,000 a month from Social Security. That means you are short about $1500 a month.
Now look closely at your expenses. Will you have your mortgage paid off by the time you retire? Do you have other large debts, like money you borrowed to put your kids through college, that could be paid off by the time you retire?
Let's assume that you have $500 a month in bills that will be eliminated when you retire. Now you are only short $1000 a month.
Are there other expenses that will be reduced once you quit working? Will you save money on gas for your car, business lunches, parking, union dues, and other job related expenses? That may be another $200 a month in savings. Now you only need to make up $800 a month, or $9600 a year, in order to maintain your current standard of living.
Saving enough money to produce an extra $9600 a year seems much more manageable. If you have $160,000 invested with a 6% return, you will earn exactly the $9600 a year that you need. If you don't have that much saved, you still have a few choices.
More Ways to Increase Your Income or Reduce Expenses
If you have not saved the money you need to retire, you still do not have to give up the idea of ever retiring. There are a few other actions you can take to make it a reality.
First, you can continue working another year or two, which will increase the amount of Social Security you will earn and to give you time to save more money. If you work until you are 70, you could easily increase your Social Security to $3000 a month, and your spouse would get $1500. Now you're receiving $4500 a month, which is the amount you currently spend, and your problem is solved.
Another approach is to look for ways to downsize or simplify your lifestyle, such as moving to a smaller home, making do with one car, and cutting back on travel or entertainment. Just having a smaller mortgage could be enough to bridge the gap.
In addition, you should look carefully at the Medicare plan you choose when you both retire. If you have a Medicare Advantage plan that charges you no additional fee over the basic cost of Medicare, that will probably save you a lot of money compared to what a Medicare Supplement plan would cost. Shop around. If you have paid for individual medical insurance policies in the past, this could really cut your expenses.
Try to Get a Higher Return on Your Assets
If you have managed to save some money in your retirement accounts, but less than $160,000, you could take the money you have and see if you can find an investment or annuity that will pay you more than a 6% return. The higher the return, the less money you will need.
You might be able to find some dividend paying stocks that pay a good rate of return. Make sure you diversify your funds over several stocks, however, and remember that high-dividend paying stocks can be volatile or, sometimes, risky investments.
In some cases, you might choose to put your assets into a product like an annuity. For example, AARP.com currently offers annuities starting at 6.1% for people who are 65, 7.5% for people who are 75, and even higher rates for older seniors. I'm sure that other companies will match those rates. Shop around and get the best deal possible.
The bottom line is that, for most of us, trying to save a million dollars might be nice, but it is probably unnecessary. As always, you are welcome to leave comments and suggestions on any post and I will reply within 24 hours.
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