The Retirement Crisis in America: How Much Do You Really Need to Save?

It has been widely reported that there is a major retirement crisis in America. The main reason for this is people underestimate how much they will need to live comfortably for retirement.

The average American hopes to retire by the age of 63. Most retirements last in the range of 15-20 years. And thanks to medical advances, life expectancy continues to rise, while Americans continue to aim to retire younger and younger - meaning the average retirement length will continue to rise.

Most Americans know that they need to save for retirement; however, the majority of people save less than they should, often putting off saving for down the road.

Social security is an option (for now); however, it is meant to be a supplement - not your sole source of income during retirement.

How much do you need for a comfortable retirement?

This question depends on numerous factors. But a good general rule of thumb is for your retirement-monthly-income-estimate to be based on what you currently make through your employment. In other words, to continue on with what you currently make.

If you make $60k annually, this translates to roughly a bi-monthly retirement income payment of $2500 ($5,000 per month) to supplement your income.

Using that figure, you would need over $1 Million in an annuity which returns a 6% annual rate of return, as well as accounting for inflation which is roughly another 2%. With those numbers, you can reasonably expect to draw $2,500 bi-monthly over a 30-year period. Ideally you would purchase a deferred annuity a few years prior to the actual annuitization period, and thus could accumulate additional funds before you start receiving income.

Assuming the same figures above of a $60k annual salary, it can be a daunting task to try to save this kind of money if you don't start early. Obviously the earlier you can start, the less you need to save each month to reach your goal.

Even putting $20k of your $60k annual salary aside, with a 5% annual interest rate earned, you would be looking at needing to do that for 25 years to reach $1 Million.

Assuming you can actually put 1/3 of your salary aside every year for 25 years and you retire at the age of 63, then you only need to get started at the age of 38.

However, the average American can not put 1/3 of their salary away.

As a matter of fact, the average 50-year old in America has less than $50k saved and 38% of Americans don't actively save for retirement whatsoever. This is why there is a major retirement crisis in America.

Social Security:

And while social security is a good added bonus which can supplement some of your income, it is expected by 2034 social security will only be able to cover 77% of promised benefits.

Healthcare Costs:

Of course none of this factors in healthcare. It is pretty rare to find a job that offers healthcare coverage to retirees. That is troubling considering that the average out-of-pocket medical costs for a husband and wife couple who are 65 years old is over $200k.

What Can You Do IF You Haven't Started Saving Yet?

The easy answer to this question is to start right away. If you are employed then hopefully you can take advantage of a 401k plan where your employer matches your contributions. This is not available in every job but if it is available in yours, it is a must-do. That is free money and comes with the added advantage of lowering your taxable income for the year. You can contribute up to $18,000 (as of 2017). If you are 50 or older, you can add an additional $6,000 to your annual contributions.

If your employer doesn't offer this option, than a traditional or ROTH IRA is your best bet, combined with a regular savings account. You are allowed to contribute $5,500 to your ROTH IRA, or $6,500 if you are over 50.

So don't fret if you haven't started saving yet. There is still time even if you are over 40. But you cannot afford to put if off anymore. Speak with an advisor today and get started on planning your retirement.




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