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Most Americans don’t have adequate retirement savings to live out their retired years in the comfort they deserve, desire, or expect.
According to the Government Accounting Office, in 2016 nearly half (48%) of Americans over age 55 had no retirement savings at all. Their plan? To live solely on their Social Security benefits. While Social Security is an essential part of retirement income, it is not enough to sustain most people. Check out this Social Security benefit estimator.
The general rule of thumb is that you will need 80% per year of your pre-retirement income for a comfortable retirement. Yet, no two thumbs or living situations are the same. You will need to look at the variables that define your situation to calculate what will be enough for you.
1) Where you plan to retire. The cost of living in Los Angeles is different than the cost of living in Tucson, Omaha, or Tampa. You can use online resources, like real estate and municipal websites to gain insight into local costs. You’ll want to understand local housing, taxes, and living expenses. People wanting to retire outside the US need to consider these and other factors.
2) Health care expenses. Even when you’re enrolled in Medicare you’ll still need supplemental and prescription drug insurance coverage, and those plans—their cost and coverage—vary from state to state. You’ll also want to account for vision and dental care.
3) Your current age. It’s a determining factor in your ability to save for retirement and will influence your saving strategy.
Saving looks different in your 20s (enroll in your employer’s retirement plan, manage your credit score, open an IRA), in your 30s (pay off your student loans and credit card debt, contribute to your IRA), in your 40s (calculate your net worth, get health care insurance that allows you to have a Health Savings Account, contribute to your IRA), and in your 50s (take advantage of catch-up contributions).
4) The age you plan to retire. Your “full retirement age” as calculated by the Social Security Administration depends on when you were born. The monthly amount you receive, however, will depend on how old you are when you begin to draw benefits. Typically, you get the biggest payout if you wait until age 70. You can claim benefits regardless of whether or not you continue to work.
You can determine how close you are to your savings goal by using a retirement calculator. The only information you need to get started is your current age, your pre-tax income, and the amount of savings you have on hand now. From there, the calculator tells you whether you are on track or need to save more to reach your goal.
You can then assess different saving scenarios that may move you closer to a secure retirement.
Of course, life doesn’t stop while you are saving for retirement. School tuition, the down payment on a house, car expenses, and health care costs are just a few of your other financial demands. Not to mention ongoing living expenses: rent or mortgage, utilities, clothing, entertainment.
Then there are the unexpected expenses. Too many people fail to plan and save for emergencies. A 2019 survey from the Bankrate Financial Security Index reveals that 60% of respondents could not pay an emergency expense of $1,000. The Federal Reserve Bank in 2017 estimated that it would be difficult for 41% of Americans to pay an unexpected $400 expense.
To put those figures in context, think about the deductible on your health care insurance, what it would cost if your car got towed, or the price of a replacement water heater.
Financial experts suggest having three to six months of living expenses in an emergency fund to cover an unplanned period of unemployment or a major unexpected expense. Unlike your retirement savings you will need immediate access to your emergency fund, so keeping it in a savings account is your best bet.
Open a Self-Directed IRA online with The Entrust Group today to start saving for a comfortable retirement.