This surprising retirement statistic could change your future – The Fool Motley

Retirees today should be miserable.

According to Transamerica A precarious existence: how do today's retirees get out financially? (this link opens a PDF version of the report), retirees have generally retired earlier than expected. And most of these early retirements were due to poor health (28%), loss of employment (24%), family responsibilities (15%) and not enough savings (10%).

The median retiree today has a meager savings of $ 75,000 household, not counting the net worth of the house (which represents only an additional $ 79,000). The median household income is $ 32,000, and 66% say social security will be their main source of retirement income.

Since Social Security is designed to replace only about 40% of a retiree's early retirement income, it is not surprising that 59% report spending less in retirement than during their working years .

Frankly, their financial situation is rather bleak. However, they are not completely miserable

They are surprisingly happy

Do not take my word for it – 40% of respondents to the Transamerica study reported that they enjoyed their life better than before their retirement and 39% said that their pleasure was not good. had not changed. Only 19% reported experiencing a decline in the pleasure of living.

T. Rowe Price & # 39; s 2019 Savings and Expenses Retreat The survey found that 80% of retirees responded that they were strongly or somewhat in agreement with the statement "I am enjoying my retirement years more than my main years of work . "

Despite lower expenses and a much less secure financial future, retirees manage their retirement very well. The study of Transamerica revealed that the vast majority of them are also optimistic, with 91% of respondents describing themselves as "generally happy people".

Here is my best idea of ​​why

This is what is called "hedonic adaptation" – the tendency to get used to the new circumstances of life. (My colleague, Brian Stoffel, recently published an excellent article on hedonic adaptation, which covers the concept much more thoroughly than what I've been able to here.)

So when you to have to start saving (in retirement, for example), your life satisfaction drops and then gradually returns to the average. And the same thing happens on the other hand if, for example, you get a big raise at work or start living on the beach – of course, it's great for a little while, but little by little, becomes normal.

Now, here's where it gets interesting

Retirees have adapted hedonously to spend less money because their situation strength them to. They had not spared enough to maintain their previous standard of living, they had to retire and they are now here.

But if you still work, you can to choose adapt to live more frugally. There are many ways to reduce your expenses, but the essential is to try to do it several years before your retirement so that time will work in your favor.

Reducing your expenses offers a double advantage:

• You can save more for retirement. Because, no matter if you will have more money in retirement that will make you happy, today's retirees still have to pay $ 285,000 (or more) in health care, and you do not want to skimp on medical care if you can avoid them.
• You are already used to this more frugal standard of living before retirement. This should make the adjustment to life more graceful retirement in general.

And a small amount can make a big difference. Saving and investing just $ 100 more per month (with a return of 7%, which approximates historical stock market returns), represents an additional savings of more than $ 120,000 in 30 years (and more than $ 32,000) in just 15 years).

To be clear

Whatever you do, please do not take this article as meaning that I think you should not save a ton of money for retirement.

In the end, money is not the only key to happiness. Even though they face many financial difficulties, today's retirees are rather happy to live more economically than when they were working.

So consider practicing this frugality earlier and save a lot of money – this could change your future. Give yourself a huge safety margin, if you are able to (especially for health expenses). But whatever you do, do not spend your active life dreading retirement, because you think you have not spared enough to maintain your current standard of living. It seems that for many retirees, things tend to settle themselves.