One of the most put off expenses for working adults is retirement savings. The period of time we spend working is more than forty years – that’s a long time to save! During the first years of work, entry level paychecks barely cover basic expenses, which means it’s not easy, or even feasible, to save for retirement. While this is understandable, when promotions, bonuses, and raises are achieved, workers don’t think to put money aside, which is a huge mistake. At some point, though, much later in our careers, we begin to save. But the question arises: how to set aside? Here are the retirement saving facts.
Retirement Now Versus Yesterday
In 1950, the average retirement age was 70 years-old, and the average length of retirement was only ten years. Life expectancy was in the mid-60s, which, if you’re looking carefully, means some people never even made it to retirement.
Today, retirement age has fallen to about 63 years-old, but the average person now lives to nearly 80. That means retirement now spans an average of 22 years. That’s more than double that of your grandparents! What this means is that prolonging nest egg savings is a bad idea, and if you need to catch up, you should start now because you’re going to need twice the money than you would have in past generations.
The Facts and Figures
Since retirement is so much longer, it now stands as the most expensive significant expenditure of a person’s life. Looking at numbers supplied by Age Wave/Merrill Lynch, the averages of major life expenses are as follows: college at $83,400, raising a child to 18 years old is $245,300, and the total average spent on a home is $278,300.
Comparatively, retirement costs an average of $738,400 per person. That number doesn’t include Social Security benefits or other income sources in retirement, it’s strictly the amount of money an individual should have saved. Of course, this number fluctuates per person and situation, your number may be higher or lower, but it’s a good benchmark.
How to Know Where You Stand
There’s a rough rule for figuring out what your individual savings should look like. The methodology is this: you should spend 4 percent of your nest egg per year, plus your Social Security (which currently averages at $17,000 per person), and your other income like 401K payments, and investment income. So from $738,400, you’re looking at about $30,000 spending from your savings account each year in retirement, in addition to the other income you’re set up to accumulate.
Is that enough? Extravagant? Make some budget cuts (realistically), extend your working years, or put more of your salary into savings. Most working adults only put 5.5 percent of their income aside in savings, which is troublesome because it isn’t probably enough to cover long term retirement, or the additional care costs that will inevitably arise.
A mere 15 percent of new retirees have a solid estimate of their retirement spending. The sooner you get the financials under control, the better you’ll be in your long, happy work-free years.