The word retirement can mean many different things.
For some, it means spending time with loved ones. For others, it means traveling the globe and taking luxurious cruises.
I take the position that retirement can be defined this way: Going to work because I want to… and not because I have to anymore.
The goal for most folks in retirement is to have saved enough assets through their earning years to maintain their current lifestyle.
In the constantly changing world, this is seemingly becoming harder and harder as time goes on. A 2019 Government Accountability Office study found that nearly 48% of Americans age 55 and older don’t have any retirement nest egg or a traditional pension plan.
This would mean that the average couple that earned $100,000 in wages per year before retirement could expect roughly $45,000 from social security income combined. Not to mention that the Social Security Administration has disclosed that the program will only have enough funding to pay 72% of entitlements by year 2034.
These can be very troubling statistics for the person above who wants to maintain their standing of living pre-retirement into, and throughout retirement.
Allow me to share four key questions that every American should ask themselves in thinking about retirement.
1 – What rate of return do you have to earn on savings & investment dollars to retire at your current standard of living… & have your money last through your life expectancy?
According to Albert Einstein, the 8th wonder of the word could perhaps be compound interest. In order to have this phenomenon come to life, saving has to take place. The other considerable point is life expectancy.
“Plan to live a long time… because you might.” If you look at the Uniform Lifetime Expectancy Table III published by the Internal Revenue Service, you will find that the ages go out to age 121. Yes, one hundred twenty-one years. This actuarial science datapoint has shaken up the thought of retiring at 65 and having to provide for 25 more years of income.
2 – How much money do you need to save on a monthly or annual basis to be able to retire at your current standard of living… & have your money last your life expectancy?
Typically this number ranges somewhere around 15% of your income. For example, if you make $100,000 per year, you should be saving (and investing) somewhere around $15,000 dollars to maintain your standard of living through retirement.
A common principle that has been taught is the rule of 50/30/20. Fifty percent of your income should be for fixed expenses (mortgage, insurances, car payments, etc.) Thirty percent should be for discretionary or variable expenses. Twenty percent should be for savings and paying down debt.
This principle applied effectively using proper financial strategies that align with your belief system can set folks up. Notice the mention of proper financial strategies. Every circumstance is different and calls for a different strategy.
3 – Doing what you are currently doing, how long will you have to work to be able to retire & live your current lifestyle until life expectancy?
This question is simple enough to comprehend. Are you prepared?
4 – If you do not do anything different than you are doing today, how much will you have to reduce your standard of living at retirement for your money to last your life expectancy?
That’s a scary thought. I don’t think anyone in their right mind would choose to reduce their standard of living in retirement.
If you are one of those people that has not been able to answer these questions, or the questions have answers that make you uneasy… your time is now!
I encourage everyone that reads this post to let it motivate you to make the necessary changes for you and your family to enjoy the golden years of your life.
Your time is now!
U.S. Government Accountability Office. “Retirement Security: Most Households Approaching Retirement have Low Savings, an Update.” Accessed March 5, 2021.
The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. It is only intended to provide education about the financial industry. Please consult your certified financial advisor.