Showing posts with label how much money do i need to retire. Show all posts
Showing posts with label how much money do i need to retire. Show all posts

Wednesday, May 3, 2017

Short on Retirement Savings? - Find Solutions

How much money do you think you will need in order to retire comfortably?  The honest truth is you probably need more, much more, than you actually have.  According to, half of Baby Boomers, the generation which is currently retiring at a rate of 10,000 people a DAY, have saved less than $100,000.  Over one-third have saved less than $50,000.  This means a substantial number of Baby Boomers have not saved enough money to produce a modest retirement income, even when combined with their Social Security benefits, and they are at a serious risk of outliving their retirement savings.

Breakdown of Baby Boomer Savings

The report at showed the following statistics for Baby Boomers as of December, 2016:

37% - Saved less than $50,000
13% - Saved between $50,000 and $100,000
14% - Saved between $100,000 and $200,000
12% - Saved between $200,000 and $300,000
09% - Saved between $300,000 and $500,000
15% - Saved $500,000 or more

How Much Does the Average Retiree Spend?

According to the Bureau of Labor Statistics, the typical household whose head of house is age 65 or older spent $44,664 in 2015.  That cost-of-living has probably increased since that time.

How Much Income Can the Average Retiree Expect?

Social Security is designed to replace approximately 40% of an employee's pre-retirement income, although many Baby Boomers mistakenly believe it will replace 90% of their income, instead.  In 2017, the average single retired person collects $1,360 in Social Security benefits.  The average couple receives $2,260 in benefits.   This translates to an income of $27,120 a year for a retired couple, far below the $44,664 the average household spends.  At a 6 percent return, only the people who have saved $350,000 or more (less than one-fourth of retirees) will have enough savings to make up the difference between their income and the average cost-of-living for the typical retired couple.

To make matters worse, many certified financial planners recommend retirees withdraw no more than 4% of their retirement savings per year at the beginning of retirement, and increase that amount very gradually, in order to be confident they will not run out of money during the remainder of their lifetime. This means they would actually need to have $450,000 or more in savings in order to maintain an average lifestyle.  Unfortunately, the vast majority of retirees do not come close to having that amount of savings.

What to do if You Have Not Retired Yet

If you are getting close to retirement, but you have not stopped working yet, here are a few steps you can still take to deal with a shortage in your retirement savings.

1.  Start cutting your expenses now, while you are still working, so you can adjust to your future cost-of-living and, at the same time, free up more income for savings.  It is better to make small sacrifices now, if it means you will be more comfortable later in life.

2.  Increase the amount of money you have going into an IRA, 401(k) or 403(b).

3.  Postpone retirement until age 70, which could increase your Social Security benefits by approximately 24% over what you would receive if you begin to collect at age 67.  This action alone could substantially reduce the amount of savings you will need during retirement.

4.  Pay off all your bills, including your auto loans and mortgages, if possible, to minimize your expenses during retirement.

5.  Discuss your retirement plans with a certified financial planner to make sure your savings are invested appropriately to maximize your earnings and growth.

What to do if You Have Already Retired

If you have already retired and realize you are going through your savings much more quickly than you expected, you may want to see if you can find a part-time job and reduce the size of your savings withdrawals ... or even postpone making additional withdrawals until you are older and unable to work.  This is the best way to maintain your independence and salvage your savings after retirement.

Retirees who are falling short may also want to see if they can find a less expensive place to live, cheaper car to drive, or make other adjustments to cut their cost-of-living.

Finally, if you are concerned about outliving your money, you may want to talk to a financial planner to see if you can increase your income without using up the principal you have saved.

If you are interested in more ideas about preparing financially for retirement, where to retire, common medical problems, changing family relationships and more, use the tabs or pull-down menu at the top of the page to find links to hundreds of additional helpful articles.

For an overview of retirement planning, watch for my book, Retirement Awareness, which is being published by Griffin Publishing and will be available in 2018.

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Wednesday, October 8, 2014

What Is Your Retirement Number?

Have you figured out your retirement number, yet?  Until recently, I had never heard of the extremely helpful retirement planning book called "The Number: What Do You Need For The Rest of Your Life and What Will It Cost?"

This is one of the more fascinating retirement planning books I have read.  To make it even better, the author includes a touch of humor in the way he discusses this very serious topic.  It was even mentioned in a recent segment on "Good Morning America."

What I appreciate most about this book is that it gives you simple, easy-to-follow guidance in coming up with a reasonable estimate of the amount of money you need to save and the amount of income you should have in order to enjoy the type of retirement that will be comfortable for you.  This is not an average of what most people need; it is a way of estimating the very specific needs of you and your spouse.

What Numbers Do Retirees Need to Know?

Retirement Income:  Have you come up with an estimate of how much income you will have when you retire?  How much will you need?  This author estimates that most people will need about 85% of their final working income.  In other words, if your last year's salary was $75,000, then you will need about $64,000 a year to retire with a lifestyle that is similar to the one you enjoyed during your working years.  Of course, if you make dramatic changes, your actual expenses could be higher or lower than that.  How are you going to reach that $64,000?  Half of it or more could come from Social Security.  The rest will need to come from a pension, a retirement job or investment income.

Retirement Savings:  This book suggests that people should have put aside eight times their last year's income.  If you are earning that same $75,000, that means you should have saved $600,000.  Again, this may change from person to person depending on other sources of retirement income you may have and your planned lifestyle after retirement.  Some of this retirement savings may be what you have put aside in an IRA or 401(k).  Some of it could come from the equity in your home or other property if you sell it and move someplace less expensive.

Withdrawal Rate:  While there was a time that people estimated they could withdraw 7% a year from their savings, this is considered far too aggressive today.  Instead, most people should limit their withdrawals to about 3% to 5% if they want the money to last the rest of their lives.  It is best to withdraw less in the early years and more in the later years when you may not have the ability to work part-time or do other things to supplement your income.  If you have managed to accumulate the $600,000 mentioned above, at 3% this would come to about $18,000 in income a year.  At 5%, this would amount to about $30,000.  If your goal is to reach the $64,000 in retirement income that you would need to replace a $75,000 salary, and you and your spouse together have at least $34,000 in Social Security benefits, then this gives you "your number."

This book is not only informative, but humorous and will help many Baby Boomers, as well as younger adults, put more thought into how they are going to achieve their number ... and what they will do if that number seems impossible to achieve.  Don't worry.  This book will not leave you feeling as though there is no way for you to reach a "number" that will work for you.

If you would like to pick up a copy of this book, here's a quick link to help you find it on Amazon:

"The Number:  What Do You Need For The Rest of Your Life, and What Will It Cost?"

If you want to read about other approaches to retirement planning, use the tabs at the top of this page to find links to hundreds of articles about money issues, family relationships after retirement, health concerns, and where to retire, both in the United States and other countries.

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Thursday, March 15, 2012

Do You Need a Million Dollars to Retire?

Recently I have noticed on some of the question and answer sites I use, such as, that people are asking if they will really need to save a million dollars before they retire.  Obviously, the people who are asking this question are those who realize they are not even close to reaching that lofty amount of retirement funds.  What has been even more interesting than the question of "how much do I need to retire," however, are the answers.

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, 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.

To stay up-to-date with information related to retirement, use the tabs or pull down menu at the top of this article to find links to hundreds of additional articles on financial planning, affordable places to retire, medical issues, and more.

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Thursday, November 10, 2011

How Much Money Do I Need to Retire?

When Can You Retire?
In early 2011, on my way to work, I heard a disturbing news report.  Approximately 44% of Americans felt that they did not have enough money to be able to retire comfortably.  That number has only grown worse.  Millions of Baby Boomers are not prepared to retire.  In fact, since that report in 2011, the truth is that currently mover than half do not feel they have saved enough.

More recently, the CBS also reported that more people than ever before expect to work past the age of 65, primarily because they need the money.  Reality is beginning to set in for Baby Boomers.

The Retirement Situation for Baby Boomers

The November 2011 AARP Bulletin reported some alarming statistics.  While the exact numbers have changed a little since that time, they are roughly the same.

*  31% of people over the age of 50 have credit card balances

*  44% have mortgage payments on their home

*  In 50% of households of people over the age of 50, neither spouse is currently saving for retirement!

*  The average monthly Social Security benefit is $1,182 a month (that amount was closer to $1,200 a month by 2015, although that is still depressingly low).

*  In 2009, 22% of retirees relied on Social Security for at least 90% of their retirement income

*  In 2010, 56% of Social Security beneficiaries were women ... and they often receive lower benefits than the average man

These statistics paint a discouraging picture about the future financial situation of the aging Baby Boomers.  It may be time that more of us take a hard look at our investment income, and decide what we can do now to prepare for retirement.  Although many of us assume that we will just keep on working forever, the reality is that it isn't always possible.  Sometimes people get laid off in their 60's and find it difficult to find another job.  In other cases, our health declines and we simply are not physically capable of continuing to work.

What Are Your Plans for Assisted Living?

Finally, think about what will happen to you if you need to go into assisted living.  According to the Genworth 2011 Cost of Care Survey, the median annual cost of a one bedroom unit at an assisted living facility ranges from about $28,800 per person in Georgia to about $55,000 in Maine and Delaware.  It is an extraordinary $66,000 in Alaska.  Can you and your spouse afford to pay that?

There are options.  The time to purchase long-term care insurance is when you are young and relatively healthy.  Purchasing this insurance means you will have to save far less money to cover your future medical expenses.

How Much Will You Need to Retire?

The bottom line is that only you can figure out how much you will need to retire.  Start by looking at your benefit estimates from Social Security.  Compare that to your budget.  Look at the difference between the two amounts.

Are there areas in your budget that will disappear by the time you retire?  If possible, pay off all the bills you can.  Look at all the ways you can get your budget as low as possible by retirement.  Then compare the differences between the two amounts.

Let's assume you will still be short $800 a month or $9600 a year.  If you are going to follow the 4% rule, which financial planners suggest as a way to make sure your money lasts the rest of your life, then you need to save 25 times the $9600 a month in order to have enough money to retire.  That means, in this case, you will need to save $240,000.  Obviously, the sooner you start, the easier it will be to save this amount of money.

If you don't think you can save this much, you need to figure out how you will cut your expenses or increase your retirement income ... perhaps by postponing your retirement.

Start planning early for a successful retirement.

If you are interested in reading more about retirement planning, where to retire, health issues, and more, use the tabs or pull down menu at the top of this page to find links to hundreds of additional articles.

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