By Craig Erwin, Ph.D.
Does it seem as if everyone retires to a mansion in Florida? It’s far from the truth. The 20th Annual Transamerica Retiree’s Survey found that the average retiree had an income of only $29,000 before taxes in 2019. Can you live on $29,000? Some retirees were even worse off. 27% of households reported household income under $25,000 before taxes and 56% of households reported income under $50,000 before taxes. Only 13% of households had income of at least $100,000 before taxes, so relatively few retirees are rich.
Is it because they fail to plan that so many retirees have low income? No. As Catherine Collinson, President and CEO of the Transamerica Institute and Transamerica Center for Retirement Studies noted, some retirees are forced to retire early, perhaps due to a job loss or disability, reducing the number of years they work and extending their years in retirement.
A big challenge for retirees is paying off debt. Transamerica’s survey revealed that 46% of retiree households had nonmortgage debt and 23% had mortgage debt. That hurts. Debt is difficult enough to pay down when you are working. When you’re retired, it can be insurmountable.
Transamerica found that many retirees are plagued by low income through no fault of their own – they were surprised by job losses, medical problems, and the like. Although it is too late for retirees to change their financial fate, younger generations can avoid joining them. They need to prepare for retirement by saving and investing and they should make realistic assumptions about families, expenses, health, and employment. Plus, they need contingency plans in case they lose a job or are no longer able to work.
How can you ensure that you are prepared to retire when the time comes? And how can you ensure that you retire comfortably and won’t need to rejoin the workforce someday? Preparation. Start saving for retirement as early as possible and as aggressively as possible.
The most important factor affecting whether you can retire comfortably is how much you save. It’s best to start saving for retirement in your teens when you land your first part-time job. Open an Individual Retirement Account (IRA), put as much money in it as you can, and invest the money in an index stock mutual fund such as an S&P 500 index fund. Then when you start your first full-time job, sign up for the employer-sponsored retirement savings plan (e.g., 401k, 403b) right away. Have as much deducted from your paychecks as possible – save till it hurts. This will increase the likelihood that you can retire comfortably on your own terms.
Just because most retirees have frighteningly low income doesn’t mean you can’t do better. If it’s important that you retire comfortably without worrying about money in your golden years, take steps to make it happen. You rarely hear someone lament that they saved too much for retirement, but retirees living near the poverty line are everywhere you look. Make sure that’s not your fate. Save and invest. Save and invest.
Are you saving for retirement? If so, are you confident that you are saving enough? How do you plan to spend your retirement?
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