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It's one thing to be late on retirement savings in your thirties or forties, when you still have a big part of your career ahead of you. But if you are under 60 and you do not have a lot of retirement savings, the situation becomes a bit more serious.
Unfortunately, the median balance of retirement savings among 60-year-old Americans does not exceed $ 172,000, according to data from Transamerica. At first glance, this may seem like a good amount of money, but when we apply an annual withdrawal rate of 4% of this amount at retirement, which many experts recommend first, this is only a matter of course. income of $ 6,880 per year. Given that the average American aged 65 and over spends about $ 46,000 a year, this is clearly a scary gap.
SOURCE OF IMAGE: GETTY IMAGES.
However, this $ 6,880 does not include other sources of retirement income. If you are like most old people, one of the most important will be social security. But if you think that your benefits will be sufficient to make up for your lack of savings, you'd better change your tone before you run out of time to fix an otherwise dangerous financial situation.
Social security will only take you to the present
Although Social Security certainly plays an important role in helping you pay your bills as a senior, you can not only live on these benefits, and you can not really expect that they will replace your savings. real. Currently, the average recipient receives $ 1,422 per month. Next year, this figure will reach $ 1,461, bringing the annual total of the standard beneficiary to $ 17,532. But even if we add the $ 6,880 savings above, that still gives us $ 24,412 – just a little more than half what the average senior ends up spending.
The are steps to increase your Social Security benefits to get more money in retirement. In other words, you can not touch benefits after the retirement age, which gives you an additional annual boost of 8%. This means that if you reach the age of retirement at age 67, you will be entitled to $ 1,461 per month. If you drop at age 70, that figure would be about $ 1,812. Your annual social security income would increase by $ 4,212 for a total of $ 21,744.
Clearly, this represents an improvement over $ 17,532. However, your total annual income is only $ 28,624, excluding savings withdrawals, which is well below the $ 46,000 you should aim for instead.
And that is why relying on Social Security to make up for your missing savings is not a wise decision. Instead, you should aim to increase your nest egg as much as possible while actually making a difference in your retirement picture.
It's not too late to catch up
Increasing contributions to your retirement plan will require some effort on your part, but it could also be the move that will save your golden years. Imagine that you are 62 years old, with $ 172,000 in your name and that you plan to pay $ 400 more per month to your 401 (k) over the next five years before you retire. If your investments generate an average annual return of 5% during this period (keeping in mind that, as you approach retirement, you do not want to invest as well aggressively), you will have $ 246,000 at age 67.
It changes your financial situation a bit. Instead of just $ 6,880 a year in savings income, you will have $ 9,840 to work. But that's again well below where you need to be.
If you maximize your 401 (k) to $ 24,500 a year for the next five years, you will accumulate about $ 355,000 in your nest egg, assuming that same return is 5%. And this, in turn, brings your annual retirement income with savings to $ 14,200.
Of course, going from a monthly contribution of $ 400 to over $ 2,000 is not easy. But if you're ready to dramatically reduce your expenses and make other sacrifices, you'll be grateful once you stop working and collect a paycheck.
In addition, if you extend your career to age 70 while still maximizing your return to 401 (k), your savings would increase to $ 488,000 (again, assuming a 5% return). Withdrawing from this total at a rate of 4% per annum would then provide you with $ 19,520 in income. Add the $ 21,744 you would have in Social Security while waiting for benefits up to age 70, and suddenly you get $ 41,264 a year – no as well far from the $ 46,000 we are aiming for.
Make no mistake: Social security will probably play a big role in covering your retirement expenses. That said, you can not count on that to make up for the lack of savings. If you are approaching the golden age and you do not have a lot of money, consider this an awakening to start doing better.
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