Will I Be Able to Retire? Here’s How to Know for Sure

October 6, 2021

The American retirement is in trouble.

As of 2019, nearly half of all Americans aged 55 or older have absolutely nothing saved for retirement in a 401(k) or Individual Retirement Plan, with 29 percent of that group left without access to a defined benefit plan or pension, leaving them entirely dependent on Social Security to survive in their golden years.

That’s a different picture than what’s usually touted by retirement experts. According to the Government Accountability Office (GAO), for instance, the average balance in a retirement account for those approaching retirement age is just over $107,000. But what that figure fails to take into account is that half of the population that has $0 in the bank. Those numbers are getting skewed by the smaller segment of the pre-retirement population that has $1 million and more saved up.

After all, that $107,000 figure results in barely $320 per month to live on in retirement.

That’s why many retirees rely heavily on Social Security, which averages more than $1,400 per month as of 2019, to make up the shortfall and provide for a more comfortable life.

That’s the bad news.

The good news is that, with some foresight and planning, a comfortable retirement is still possible, with the help of private savings. Still, many Americans are worried that they won’t have enough saved up to live the life they’re expecting in their 70s and beyond. But, by following a few steps while you’re young, it is still possible to get back on track, and stay there throughout your life.

Are you prepared for retirement? Here’s how to make sure.

Break Down the 4% Rule

Many retirement experts recommend that retirees live by the “4% rule,” withdrawing 4% of their savings every year in retirement. It’s a good way to benchmark how much you’re taking out vs. how much appreciation you’ll need from your remaining assets. The goals is to take out a little and make up for it in portfolio performance over time, keeping your balance more or less the same (or growing).

So, do the math.

Like that average account mentioned before, if you have $100,000 in your retirement account when you leave the workforce, expect to be able to pull just $4,000 out of it annually once you’re retired. That’s just $333 per month.

Is that enough for you to live on? Probably not, so determine what you in fact need and work backward.

Prefer to get $1,000 per month? You’ll need $300,000 in savings to work with.

$4,000? That’s $1.2 million.

You get the idea. But, by doing the math ahead of time you’ll have a better idea exactly what you realistically need and can prepare to hit that target while there is still time.

Get Real About Your Spending

It’s easy to overshoot when planning for retirement. Many people simply take their monthly budget as it is today and plan for that to remain more or less the same once they retire.

But it’s not that simple.

In fact, there are a number of different forces that will impact your eventual living expenses in retirement. First, there’s inflation, which averages roughly 2% per year. Costs rise, prices increase and the overall cost of living for all of us goes up every year. That’s just reality, and there’s effectively nothing that any of us can do about that.

But the second factor is that spending changes by the end of our careers. Right now, you’re probably paying monthly on your mortgage, maybe have a car loan or two, and you might even have some student loans sitting around. Truth is, most of those expenses will either change or go away entirely in retirement. A 30-year mortgage is designed to be paid off by retirement, for example, which will help cut down your cost of living.

Once you’re no longer working, you’ll save on dry cleaning, clothing costs, commuting expenses, etc as well.

On the flipside, think about what you want to do in retirement. Plan to travel the world? Buy an RV and tour the country? Eat, drink and be merry? Those are all admirable goals, but they will impact how much cash you need to have on hand to support yourself in your golden years.

Start Preparing for Retirement Today

There’s a saying that the best time to plant a tree was 20 years ago, and the second-best time is today.

That just means that there’s no time like the present.

It’s the same with retirement savings. Time is your most valuable resource when saving, so start now and keep going. It doesn’t matter how old you are or how much you can set aside – the sooner the better. It all adds up, and it all eventually turns into the restful retirement years you’ve earned.

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