Most people have the best intentions when it comes to saving money. However, as they experience financial challenges, tossing cash into a savings or retirement account becomes less of a priority. Instead, immediate needs take priority. For seniors, this mentality can keep them from being able to retire comfortably or, for some, they may have to put off retirement indefinitely.
Putting Off Saving
For many older adults, not saving enough is usually self-described as their biggest financial mistake. This can include anything from not putting money away for emergencies or suitably saving for retirement.
While it is possible to make up for the lost time when it comes to saving for retirement, it does make the situation harder to navigate. Late-savers don’t get all of the benefits of long-term compound interest, so they have to make larger deposits to offset any missed opportunities.
Concerns About Retirement Savings
Most Americans are worried that they won’t have enough to retire comfortably when the time comes. While many will have access to Social Security, providing them with at least some amount of income later in life, that alone typically isn’t enough to cover what they will need in retirement.
In 2019, the average senior who qualifies for Social Security benefits receives $1,461 a month. Over the course of a year, that’s only $17,532 in income. While that amount is $5,042 over the poverty line in the 48 contiguous states and DC, most would agree that living on that amount would be incredibly difficult.
On average, Social Security only replaces around 37 percent of an earner’s pre-retirement income. As of the first fiscal quarter in 2019, the median income for a person working full-time, based on data collected by the Bureau of Labor Statistics, was $905 a week, or $47,060 a year.
Without additional savings, being comfortable in retirement might not be possible.
A “Comfortable” Retirement
Often, seniors need closer to 80 percent of their pre-retirement income covered to live comfortably. While many assume that their expenses will decrease after retirement, many don’t experience a dramatic decrease. In fact, some may see their costs stay the same or even increase, depending on factors like healthcare costs and how much they spend on leisure activities.
Based on the yearly median income amount of $47,060, this means seniors should expect to need at least $37,648 annually after they retire (based on the 80 percent metric). After deducting the average Social Security payment, that leaves a shortfall of $20,116 each year that needs to come from another source.
Those who were born in 1953 are hitting full Social Security retirement age – for them, 66 – this year. With an average life expectancy, based on CDC data, of 78.7 years, that would mean 12.7 years would be spent in retirement, theoretically. That $20,116 annual shortfall, over that period, would total up to $256,108.20. And that relies on the notion that 80 percent of the median yearly income is enough to sustain them and that they don’t live longer than the average life expectancy.
Additional Savings Are a Must
For those with a high-cost medical issue or who wish to have more money available during their golden years, then additional savings is a must. Now, one method to increase income as a senior is to wait until age 70 to begin accessing Social Security benefits. The monthly payment increases by 2/3 of 1 percent for every month that a person waits until they reach age 70 (an 8 percent increase annually).
At age 70, that means the retiree gets 124 percent of their original benefit amount each year. If the person would qualify for the average $1,461 a month at full retirement age, that means they could get about $1,812 a month instead of delaying until age 70, which is around a $351 monthly ($4,212 yearly) increase. However, that is still a far cry from what a senior likely needs to be comfortable.
Planning for a Comfortable Retirement
Making up for the remaining shortfall can be difficult, but it isn’t impossible. If you are age 50 or older, you can save up to $24,500 each year in an employer-sponsored 401(k). Additionally, putting up to $6,500 in an IRA is allowed. Depending on how long the money can sit in the account and the return rate, that can put a serious dent in the shortfall.
However, even if you can’t max out your retirement, every bit you can save makes a difference. It’s always better to sock away something than do nothing.
Additionally, working to pay off debt and reduce your expenses can help you make your retirement more comfortable. If you have fewer costs, you won’t need as much money to maintain your lifestyle. Plus, over time, you might be able to make more space in your budget for additional savings, ensuring your golden years are as bright as possible.
Are you on your way to a comfortable retirement? Are you worried you haven’t saved enough to support yourself in retirement? Share your thoughts in the comments below.
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