Retirement Savings for Everyone
Saving for retirement is your responsibility. Here are some factors that impact your personal situation when considering retirement planning.
Retirement Saving Is Your Responsibility
Almost half of all Americans have less than $25,000 in savings and one in four have less than $1,000, according to The American College for Financial Services.
Social Security is expected to replace about 40% of the average worker’s income in retirement, according to ssa.gov. The rest must come from personal retirement savings or retirees will experience a significant drop in their lifestyle.
Bottom line: You’re responsible for your own retirement savings. Don’t count on Social Security to cover all of your retirement income needs.
Good News/Bad News: Retirement Can Last a Long Time
The average over 50 American worker expects to retire at age 67, according to a TransAmerica study. The Social Security Administration actuarial tables show that a 50 year old male in the US will live for 28 more years, while a 50 year old female will live for 33 more years.
That's good news, since it means lots of lifetime remaining in retirement. And it could be bad news, if you haven't saved enough to last that whole lifetime.
Retirement savings, therefore, is a critical component of a financial plan. It’s on us to save for our own retirement, and we can’t expect that social security will cover the cost of our retirement.
Factors Impacting Retirement Planning
What are some of the factors impacting retirement planning and preparing for retirement? Here we will look at three areas:
- Education and School Years
- Work Life Expectancy and Working Years
- Retirement Life Expectancy and Retirement Years
School Years
According to The American College for Financial Services, there is a direct correlation between the amount of education one receives and the average income earned during one’s lifetime. And, more years of schooling means a delay in entering the workforce. While the merits of a college education are often debated, bottom line here is that getting more education earlier in life increases the amount of income you make over your lifetime.
Working Years
An individual’s working years are considered one’s “Work Life Expectancy”, and as you can imagine, this period is the prime opportunity for savings. Key retirement planning factors here include savings amount and rates, timing of the savings, investment return and inflation, and years until retirement. Take care of your future self by having a balance between living now, and saving for the future.
Retirement Years
Finally, there is “Retirement Life Expectancy” or the number of years one plans to live in retirement. Key retirement planning factors here include wage replacement amount (how much of your income you expect to need in retirement), longevity and life expectancy, investment return and inflation.
All of these factors require making assumptions about what the future may look like for each individual. That’s why financial plans must be individualized and what works for one person may not work for another. You're on your own path, so tune out the noise of what others are doing and just focus on your own situation.
Now that we have a basic understanding of the factors that go into retirement planning, let’s look at savings rates.
Are you thinking about your own retirement planning? Reach out to talk about your personal financial situation.