Showing posts with label how much to retire. Show all posts
Showing posts with label how much to retire. Show all posts

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.

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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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