As we get older, it seems as though we’re faced with more and more news articles and stories about our impending retirement. And a lot of the advice can either be contradictory or overwhelming. You need X amount for a 20-year retirement. Contribute X amount to your 401(k). Pay off all of your debt but make sure you have enough liquidity for emergencies.
Retirement is arguably the biggest financial milestone you’ll reach in life, but how do you know if you’re on track? When will you be financially ready?
Much of our financial strategies throughout life focus on working toward a comfortable retirement that meets our lifestyle needs. Despite knowing how important retirement is, most people don’t know how much is necessary to maintain their lifestyle. You may be asking yourself this question.
While there’s no one hard and fast rule for determining your particular retirement income needs, we can see how you compare to others in a similar situation. Here, let’s take a look at the US Government Accountability Office’s 2015 report on how well prepared American workers are for retirement, based on their age range. (1)
If You’re Between the Ages of 55 and 64
It may surprise you, but if you have at least $1 saved for retirement, you’re doing better than 41% of those surveyed, and if you have at least $25,000 saved, you’re in the top 59%. However, this is a scary, rather than relieving, statistic. While you may not know how much you need for retirement, we can be sure it’s more than $25,000.
Among those with this amount saved, they will likely have to rely on Social Security or pensions, if they’re lucky enough to have them. In the table below, you can see resources that those in this age group have available to them, separated by those with retirement savings and those without. How do you compare?
Unfortunately, those without retirement savings don’t have much to fall back on. And even those that do have at least $25,000 aren’t guaranteed a secure retirement. So now let’s look at how much savers have actually put away for retirement.
In this age group, it seems that only the highest tier of savers are ready for retirement. Most of them are still working, though. What about those a decade older? How do you compare to those who have already reached retirement?
If You’re Between the Ages of 65 and 74
65 is a popular retirement year, though more and more people are now extending this date so they can catch up with their retirement savings. Like the previous group, this age bracket doesn’t have much in savings. Here is a chart showing the exact same information as the previous age bracket.
In this age group, people are a little more prepared but with only a slightly larger nest egg. However, the median net worth has increased and homeownership rates are higher. Let’s look at their savings breakdown.
If you’re in the 90th percentile, you may feel pretty confident about your retirement. But the 75th percentile is a pretty big drop. If you’re in this or a lower percentile, you may need to take a good look at where you are, how you’re saving and spending, and how it aligns with your retirement goals.
How Much Do You Need For Retirement?
It’s an age-old question, but unfortunately I can’t give you an answer, and neither can any charts or studies. But as we see from this study, it’s not the best idea to base your confidence on your peers, as we can see that many aren’t well prepared.
While comparing your retirement savings to your peers and using online calculators can help contribute to your knowledge, the only way to know what you, personally, need for retirement is to sit down with a professional who can analyze your unique situation.
For an accurate number, you need to factor in your health history, retirement plans, family obligations, and more—something a report or calculator can’t do. An experienced financial professional can help you come up with a retirement strategy that will give you peace of mind and concrete goals to work towards.
How I Can Help
I have been in this industry for nearly a decade and specialize in serving pre-retirees and the newly retired who want someone to help them transition into retirement and protect what they have saved. I work with clients to apply my Spend Life Well ModelTM to the task of determining your optimal spending and saving plan. I encourage you to reach out to me so we can discuss where you are and where you want to be in retirement. Together we can map out your golden years and what it will take to get there. Get started by emailing me at firstname.lastname@example.org or calling 800-491-4508.
Mark Trice is an independent financial advisor with nearly a decade of experience in the industry. As the founder of ClearVista Financial, his mission is to help people find financial balance in their lives and to spend life well. Along with providing financial planning and retirement planning to pre-retirees and 401(k) plan participants, he is also an educator. He currently holds the designation of a Certified Financial Educator® through the Heartland Institute of Financial Education. Mark has offices in Austin, Brownwood, Temple, and Waco, Texas. Along with serving clients in Texas, he also works with individuals in California and Virginia. To learn more, visit www.clearvistafinancial.com or connect with Mark on LinkedIn.