About half of Americans retire between the ages of 61 and 65, with 79% of Americans leaving the workforce by the age of 75.
But recent research has shown that most American’s are not saving enough money to be able to retire by the average retirement age.
Indeed, researchers found that Americans who want to retire by the age of 65 and have an undisrupted standard of living, must have had to save 10 to 17 percent of their income, starting as early as the age of 25. And for those who have a later start to saving and begin at the age of 35, the percentage of necessary savings jumps up to 25 to 20 percent. But the problem is that most Americans are only saving six to eight percent of their income. In fact, three out of four American households have less than $100,000 saved, according to the data from LIMRA Secure Retirement Institute.
While retirees receive $1.3 trillion in income, 42% of what comes from social security and 30% from pension and retirement plans, 41% of retired Americans make an annual income of less than $25,000.
Here are some steps consumers can take to ensure financial security after retiring and signs that can point to an individual’s ability to retire comfortably:
Many Americans are saddled with large sums of debt. Boomers, the demographic cohort in retirement age, have an average of $188,828 in mortgage debt and $27,513 in nonmortgage debt, according to a 2017 study by Experian. Further, consumers entering their 50s have $231,774 in mortgage debt and $30,334 in nonmortgage debt. Such debt can negatively affect how much an individual is able to put towards retirement.
Financial experts advise that most, if not all, debt obligations are paid off by the time of retirement. Individuals who find themselves in steep consumer debt may face financial strains that make living in retirement age difficult. Financial planners maintain that those wanting to retire soon should prioritize repayments, particularly of credit card debt. Consumers should also limit taking additional debt later on in their careers and avoid dipping into their 401k, which can reduce retirement funds.
The United States has one of the highest costs of healthcare in the world. The country spent an average of $11,000 on healthcare per person in 2017, and costs only continue to rise. In fact, costs are projected to increase to $6 trillion by 2027, which is about $17,000 per person, according to The Center for Medicare and Medicaid Services (CMS).
Lack of healthcare can have detrimental effects on retires. Past studies have shown that retired individuals who are continuously uninsured were 63% more likely to experience a decline in their overall health and 23% more likely to have daily mobility difficulties, than those who were privately insured. This is why experts advise that retirees have viable plans and consider their healthcare options before they retire.
Individuals who do not qualify for Medicare should make sure they are covered by another plan that will keep them protected in times of need. Additionally, consumers who qualify for Medicare should also ensure that they have supplemental coverage in the event of a difficult illness.
Those who retire before the age of 65 and lose their healthcare previously received from a job, have plan options within Health Insurance Marketplace. Retirees can consult healthcare.gov for more information about Medicare and other healthcare options.
As mentioned prior, those hoping to retire by the average age of 65 should have been saving an average of 10 to 17 percent of their income from an early age. Many experts agree that those ready to retire should have around 80% of the yearly salary earned while working. This means that if an individual made $50,000 a year while working, the amount readily available during retirement should be at least $40,000 a year.
Social security benefits can help to lower the amount individuals need to save before retirement. Social Security income depends on the amount an individual earned while working and how long they worked for. The average monthly payout was $1,503 per month in January 2020, while the maximum possible Social Security income for full retirement-age individuals is $3,011 as of 2020. Such amounts may not be substantial enough to cover a retiree’s necessary monthly expenses.
While Social Security payments are adjusted based on cost of living expenses, individuals should note that future inflation and any other economic or social downturns, may affect the amount saved up for retirement. High inflation could mean that money is valued lower.
Individuals should be in secure savings positions when considering retirement.
Individuals who have children or other dependents may not be in the best financial position to retire. Kids and extra monthly expenses may place further monetary strain on a retiree’s fixed-income budget.
Some financial experts advise that consumers wait until their children are living alone and self-sufficient, before retiring. Children can take up income that could be otherwise saved and used for funds in the future, particularly for those thinking about retiring early.
Retirement will mean that consumers have to rely on a fixed income. This can make finances tight, especially for those without passive forms of revenue that can continue into retirement age. It is important that individuals are prepared and monetarily stable enough to lead comfortable lives during retirement.
A large debt amount, inability to cover medical costs, remaining dependents, as well as a lack of adequate savings, can restrict an individual’s ability to retire. Consulting a financial advisor can help consumers get a better idea of how to better manage their finances in preparation for retirement.