Most US retirees say their standard of living has declined – how to make sure yours does not – The Fool Motley

When you plan to retire, it is highly likely that your dreams do not include a lifestyle that is worse than the one you had at work. Unfortunately, for the majority of US retirees, a downgrade seems to be the norm.

In fact, a recent survey conducted by ING indicates that only 30% of current retirees indicated that their income and financial situation allowed them to enjoy the same standard of living that they had at work. And as worrisome as this number is, the future is even bleaker: only 24% of the future pensioners surveyed plan to have the necessary funds to maintain their current standard of living after leaving the labor market.

This is a disturbing vision of the future. But if you are not yet retired, you should not accept a deterioration in the quality of life as a retirement prize. If you start today, you can, hopefully, prepare for retirement to live at least as well as you do when you were working or, ideally, even better than before.

If you want your money to live long after you stop working, here are three steps to take today.

1. Start saving early

If you wait to start saving until you retire, you will have to save a lot more money to maintain your standard of living. But if you start saving at a young age, you can save small amounts because your savings have a lot more time to grow.

If you start at age 20, you will need to save about $ 2,600 a year to become a millionaire at age 65, assuming a return on investment of 8%. If you wait until you are 35, you will have to save a lot more, or $ 8,850 a year. And waiting until age 50 would require setting aside $ 37,000 a year, which is impossible for most people.

Although $ 1 million may seem like a lot, saving a $ 1 million nest egg would only produce $ 40,000 in your first year of retirement if you follow the 4% rule. This is not much if you hope to maintain your old lifestyle, even combined with social security benefits.

2. Save more than 10% of your income

You have probably heard that you should save 10% of your income for retirement. But to maintain your standard of living, it's important to set aside a lot more. If you saved 10% of your income, you would probably run out of thousands of dollars if you hoped to maintain your pre-retirement expenses.

In fact, if you start saving at age 35, if you have an annual income of $ 50,000 at the time, if you save 10% of your income and benefit from an annual increase of 2%, you would end up with about $ 533,841 if you retired at the age of 3. out of 65, assuming a return on investment of 7%. Your income before retirement would be about $ 88,000, but your nest egg would only bring you an income of about $ 21,000 if you adhere to the 4% rule. If your social security benefits were about $ 28,000, you would still have $ 39,000 less than you had the money to replace your pre-retirement salary.

And, although you thought you could live with less without By reducing your quality of life after leaving your job, many expenses increase as a senior, including health care. And research has shown that almost half of older households spend more after leaving work.

You do not want to be forced to live with a much lower income – and deal with a deterioration in your quality of life – because you have based your retirement savings goals on a 10% rule that does not matter. 39, applies more in the world today lifespan, rising health care costs and lower expectations for investment returns.

3. Devote savings to health costs

Even if you have saved a lot for retirement, your standard of living may drop further because much of your money is spent on health care. In fact, about a quarter of retirees surveyed in a national survey said that health care costs prevented them from adopting the lifestyle they expected.

Health expenses can decimate your retirement portfolio. Even if you do not suffer a health disaster, counting on many prescription drugs is enough to destroy your savings. But if you or your spouse need a retirement home or home care for a given period, you could quickly consume even a substantial savings account and end up going bankrupt at the end of your life .

To prepare for huge health expenses, consider creating a savings fund dedicated to medical bills in retirement. Estimates of your needs vary, but a senior couple should aim to save at least $ 280,000 or more to cover the cost of health care in retirement. This $ 280,000 goes beyond what Medicare pays, and includes premium expenses, copays, co-insurance costs and Medicare care does not cover – but does not include long-term care such as care in a retirement home. You can put money into a health savings account if you have a very deductible health plan. Another option is to increase your desired goals for your 401 (k) or IRA to include a considerable additional amount for medical care.

Do not let your standard of living go down

Although most current retirees report a lower standard of living after retirement and most future retirees expect the same fate, you do not have to let this happen. Start today to save as much as possible on your income and make sure you have savings for health care. A large enough nest egg can replace your pre-retirement salary and allow you to enjoy life as much, if not more, than when you were working.