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Many people neglect to save for retirement during their working years. In fact, it is estimated that 45% of baby boomers have absolutely no money set aside for the future. For some, the reason is a limited income, burdened by immediate living expenses. But for others, it is the underlying protection of social security that makes retirement savings an acceptable practice.
However, here is the problem: social security is in no way designed to support the elderly. And if more workers do not realize it, they risk continuing to neglect their savings and put their future at risk.
SOURCE OF IMAGE: GETTY IMAGES.
Social security will only go so far
Because so many seniors today rely on social security to pay their bills, it is easy to assume that these benefits will be enough to pay for a reasonably comfortable retirement. In reality, they will not even come close.
Today, the average senior earns about $ 17,500 in annual Social Security income, which is barely enough to live on. In fact, social security, at the base, is really only a means of protecting poverty. It might be enough to give you a roof and gather some other essentials, but assuming you do not need any income outside Social Security is a good way to prepare for a disastrous and cash-strapped retirement. . And frankly, you deserve better.
Start making up for lost time
If you have neglected your savings, it is time to start increasing. You can start by reviewing your current expenses and find ways to reduce your expenses, thus freeing up more money for your IRA or 401 (k). This could mean downsizing in a smaller living space, abandoning a vehicle that you do not technically need or limiting your spending on hobbies.
At the same time, it is advantageous to consider a second job in addition to your usual job if you are already close to retirement and you do not have a lot of savings. Fourteen percent of the millions of Americans who stand in a rush do so for the express purpose of funding a nest egg, so if you choose this path, you will be in good company.
How much savings could you be able to raise? It depends on the efforts and sacrifices you are willing to make. But if you're 20 years old and your savings could be invested with an average annual return of 7% – which is feasible when you're buying stock – here's a sample of what you might find yourself:
|
Amount of monthly savings |
Total accumulated over 20 years with an average annual return of 7% |
|---|---|
|
$ 500 |
$ 246,000 |
|
$ 600 |
$ 295,000 |
|
$ 700 |
$ 344,000 |
|
$ 800 |
$ 393,000 |
|
$ 900 |
$ 443,000 |
|
$ 1000 |
$ 492,000 |
TABLE AND CALCULATIONS BY THE AUTHOR.
Let's be clear: There is nothing wrong with relying on Social Security to provide some of your retirement income. But if you are an average employee, you should probably expect him to replace about 40% of your former salary. However, most seniors need twice as much to live comfortably, which means that if you do not save anything, you may not be up to the task. Therefore, a better bet is to make an effort to save as much as you can for as long as you can, and use your nest egg in conjunction with Social Security to take advantage of your golden age.
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