Americans estimate that they will require $1.1 million to retire comfortably. Unfortunately, only about one in every four people will have enough money to do so.
According to the 2022 Schroders US Retirement Survey, 22% of people approaching retirement believe they will have enough money to live comfortably. This is a decrease from the previous year’s figure of 26%.
Americans have a general expectation that their retirement savings will be insufficient. In fact, the majority (56%) expect less than $500,000 saved by the time they retire, while 36% expect less than $250,000.
Unsurprisingly, American workers were most concerned about inflation reducing their retirement assets. At least for now, the second most-feared scenario is coming true: 53% of respondents are worried about “a major market downturn that makes assets much less valuable.”
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“The list of concerns that retirees and Americans in general have is longer and more serious today,” Joel Schiffman, who oversees Schroders’ defined contribution products in North America, told Bloomberg. “There is this compounding effect with inflation, the stock market, healthcare costs, and taxes.”
People who had already retired stated that they were content or that their circumstances were “not terrible, not good.” However, 18% said their retirement was difficult, and 5% said it was a complete nightmare.
A quarter of respondents said they must sacrifice what they want today in order to afford their “dream retirement,” while another quarter said they simply need to keep going. According to the study, 35% of respondents aged 60 to 67 said they would have to win the lottery to achieve their dreams.
But before you panic, you should answer an important question. What does it mean to live a comfortable retirement lifestyle?
What Is a Comfortable Retirement Lifestyle?
Your mileage will undoubtedly vary. “Comfortable retirees were more likely to have intermediate levels of financial assets (between $99,000 and $320,000) and income,” says the Employee Benefit Research Institute (EBRI).
ERBI was also discovered.
One in every two homeowners was mortgage-free, while 37% had a mortgage.
One-third had no debt, while 42% had a debt that was manageable.
They were probably married with college degrees.
More than half of them plan to grow, keep, or spend a small amount of their money, and almost three-quarters of them think their retirement savings are enough or are more than they need.
They add that “in this group, more retirees cited workplace retirement savings plans such as 401(k) plans and individual retirement accounts (IRAs) as their primary source of income, in addition to Social Security, than any other group.” Credit card and auto loan debt are the most common types of debt, with one in every three people having at least one of each.
According to ERBI, “half of the retirees in this group spend less than $3,000 per month, while the majority said they can afford their current level of spending.” “Most retirees believe their standard of living has not changed since their working years; however, one in four believes it has declined.”
In terms of retirement happiness, the retired comfortably were just behind the affluent retirees on average.
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Choosing a Relaxed Retirement Lifestyle
Before getting too caught up in the numbers, a key question to consider when planning for retirement is, “What do I want to do when I retire?” After all, putting money aside for retirement without thinking about how you’ll use it can leave you unprepared for your golden years.
According to the Social Security Administration, men can expect to live for more than 18 years and women for more than 20. As a result, you must ensure that you are satisfied with how you spend that much time. If you’re stuck, think about the things in life that are important to you. Friends and family, socialising, travel, hobbies, and so on are all examples.
To begin, answer the following questions: When you do, you should be able to determine your retirement priorities.
Are there any health issues that will have an impact on your retirement lifestyle?
How important is the quality of healthcare where you live to you?
Do you intend to remain in your current residence?
Do you want to be close to your family or friends?
Do you want to relocate to another state?
Do you think it’s important to live somewhere with lower taxes?
Is it your ambition to retire abroad?
Do you want to live in a retirement community?
Do you intend to live in assisted living when you get older?
What kinds of activities do you want to pursue in retirement that you are passionate about?
Do you want to go travelling?
Is it important to you to get involved in charitable causes?
How much money will you require in retirement?
Do you want to stay in the workforce? Part-time or full-time?
Do you want to reinvent your life in retirement?
When you determine your priorities, you will have a better idea of what you should include in your retirement plan. and, more importantly, what it will take to live comfortably in retirement.
It’s not about money; it’s about earnings.
It’s important to remember that determining your retirement “number” is more than just determining how much you need to save, says Robin Hartill, CFP®. Americans, for example, prefer to retire with a million-dollar nest egg. That, however, is an incorrect assumption.
“The most important factor in determining how much money you need to retire is whether you’ll have enough money to create the income you’ll need to support your desired quality of life after you retire,” Hartill adds. Is a $1 million savings account enough to last a lifetime? Possibly.
So, how much money do you really require? It’s certainly not 100 per cent of your pre-retirement income for most retirees. What’s the reason? These costs are unlikely to be an issue.
There will be no need to put money aside for retirement.
You may save money on transportation if you do not commute to work.
Your mortgage may be paid off by the time you retire.
If you have no dependents, you may not require life insurance.
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However, retiring on 80% of your annual income isn’t ideal for everyone, says Hartill. Your goal may need to be adjusted depending on the type of retirement lifestyle you intend to have and the range of expenses you anticipate.
If you plan to travel frequently in retirement, aim for 90 per cent to 100 per cent of your pre-retirement income.
If, on the other hand, you intend to pay off your mortgage before retiring or downsizing your living arrangements, you may be able to live comfortably on less than 80 per cent.
“Assume you consider yourself a typical retiree,” she says. You and your spouse have a combined annual income of $120,000. Using the 80 per cent rule, you can expect to require approximately $96,000 in annual income after retiring or $8,000 per month.
Social Security benefits
What’s the good news? If you’re like the majority of people, your Social Security benefits may supplement your savings. In fact, nearly nine out of ten seniors were receiving Social Security benefits at the end of 2020. Furthermore, Social Security benefits account for approximately 30% of an elderly person’s income.
However, for higher-income retirees, Social Security typically replaces a lower percentage of their income. “For example, Fidelity estimates that someone earning $50,000 per year can expect Social Security to replace 35% of their income,” Hartill explains. If a person earns $300,000 per year, the Social Security income replacement rate is only 11%.
In general, Social Security benefits will be less than half of your pre-retirement salary. As a result, you will be responsible for making up the difference.
However, there are still ways to live comfortably on a social security check:
Delay taking advantage of your benefits. Wait until you have reached full retirement age before beginning to collect benefits. If you wait until you are 70 years old, your Social Security benefits will be at their maximum. You can also withdraw your claim if you have already filed it.
Clear your debts. It is best to pay off all debts before retiring, including credit card bills and mortgages, in order to maximise your Social Security benefits. So, instead of using your benefits to buy things you already own, you can use them to buy things you need right now.
Relocate. You can increase your Social Security benefits by lowering your cost of living. If you have the option, consider relocating to a tax-friendly state. Alaska and New Hampshire have no sales or income taxes, whereas Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming have sales taxes but no income or pension taxes.
Prescriptions should not be overpriced. Medications can be quite costly. When possible, choose generic prescriptions over brand-name ones. You may also want to join a prescription drug membership programme at the pharmacy where you purchase your medication to earn rewards and receive discounts.
Take advantage of special offers. When it comes to discounts, only eat at restaurants that offer senior discounts. The same is true for retailers such as Kohls.
Consider Savings, Annuities, and Other Sources of Income.
While it is possible to live comfortably on Social Security alone, I would not put all of my eggs in that basket. In general, Social Security will only replace about 40% of your pre-retirement income. And, if the 80 per cent rule is used as a guideline, that’s only half of your retirement income.
Most people require additional income streams to ensure they can meet their bills and have a life in retirement. And, in most cases, these income streams are
plans for qualified retirement savings.
In the private sector, the most common retirement plans are a 401(k), an IRA, or another type of retirement plan. You put money into the plan throughout your working life. You usually get a tax break if you contribute to a retirement plan or withdraw money after you retire. If you work for yourself, you can set up a Simplified Employee Pension (SEP-IRA) or an Individual 401(k) (k).
portfolio for retirement.
You should have a diversified retirement portfolio in addition to a qualified retirement plan. This typically includes stocks, high-yielding bonds, high-yield savings accounts, and dividend-paying stocks.
Annuities
An annuity is a contract that you buy from a company that sells insurance or annuities. It can provide a consistent and guaranteed income stream in retirement.
Pensions
Private pension plans have become increasingly scarce over time. Government employees who still have pensions can count on them as a steady source of income for the rest of their lives.
Pension benefits for veterans
If you meet certain criteria, such as serving during a war, being 65 or older, having a service-connected disability, and having little to no income, you may be eligible for Veterans Pension benefits. It is not the same as your military retirement pension, which is based on the number of years of service.
part-time employment
You might also think about working part-time. Aside from the additional income, it can aid in the smooth transition into retirement. It’s also a surefire way to stay physically and mentally fit.
Some ideas include freelancing, consulting, or babysitting your grandchildren. You could also try your hand at driving for Lyft or Door Dash. Furthermore, you could rent out a spare bedroom to a full-time roommate or list it on Airbnb.
Speak with your licenced financial advisor to learn more about the tax implications of retirement savings or receiving Social Security benefits during retirement. Your financial situation may be jeopardised.
Options for Senior Living
Housing will most likely be your largest retirement expense. Between 2016 and 2020, housing-related costs for Americans 65 and older averaged $1,406.68 per month.
The good news is that there are several ways to reduce your monthly housing costs. When you pay off your mortgage, you will no longer have a large monthly expense. Instead, you’d only have to pay taxes, insurance, and upkeep.
Another option is to downsize to a lower-cost home and take advantage of your home’s equity. If you live in a cheaper neighbourhood, you can also save money on heating, cooling, maintenance, and taxes.
Where you live can have a big impact on your retirement lifestyle, from what activities you can do to who you will socialise with to how much your new lifestyle will cost. With that in mind, consider the following options:
Move to a less expensive state.
Before deciding where to retire in the United States, consider factors such as taxes, cost of living, health care, and other quality of life concerns. However, based on median home cost, Medicare advantage cost, and cost of living index, the following are the 12 cheapest states to retire in:
Mississippi
Alabama
Oklahoma
Arkansas
Georgia
Tennessee
West Virginia (WV)
Indiana
Iowa
SC stands for South Carolina.
New Mexico is a new state.
55+ communities
For active older adults, age-restricted retirement communities frequently offer detached houses as well as townhouses or apartments. Golf courses, organised activities, social calendars, and other amenities may be available in the community.
apartments for the elderly.
Older Americans can benefit from age-restricted apartments, condos, or townhouses that are tailored to their specific needs. The vast majority of them have swimming pools and fitness centres. Medical and dining facilities, on the other hand, are rarely available. When you move into an assisted living complex, you can use the equity in your home to fund travel or other retirement activities.
Living in another country
According to the Social Security Administration, approximately 432,000 retired Americans were receiving Social Security benefits in foreign countries at the end of 2019. Many countries provide retirement benefits to Americans while allowing them to stretch their retirement dollars, such as:
Dominican Republic, Puerto Plata
Panama, Chitre
Belize’s northernmost region
Thailand’s Eastern Coast
Italy’s Popoli
George Town, Malaysia
Cuenca, Ecuador
What is the secret? Finding a good balance between finances, finding a place to live that you will enjoy, and understanding the issues that come with being an expat, from health care to tax issues, Furthermore, Medicare typically does not cover health care in a foreign country, so you will still be required to pay income taxes in the states.
Retirement Activities and Hobbies
When you retire, you should be able to concentrate on what makes you happy and fulfilled. You can, however, pursue hobbies and activities that meet both of these objectives while staying within your financial means.
Here are some of the best hobbies and activities to do in your golden years.
Creative endeavours
Retirement allows you to pursue hobbies that interest you and devote time to them, such as knitting and photography. Also, now is your chance to start a blog or write a book about something that interests you—without having to return to work every day.
Outdoor activities
Retirement is an excellent time to visit national and state parks, as well as your favourite fishing hole, during the week and avoid the weekend crowds. What’s better? The majority of parks provide senior discounts.
Fitness and health.
Golf courses are very common in retirement communities. Running, swimming, biking, and a variety of other activities are among the many healthy lifestyle options available after retirement. Physical activity is essential for maintaining long-term health. Adults aged 65 and up should engage in at least two and a half hours of moderate—or 75 to 150 minutes of vigorous—physical activity per week.
Travel.
Because you do not have a limited number of vacation days, travelling around the world may be limited only by your budget. It may be more cost-effective to spread out an RV trip across the country over several weeks. However, flexible travel dates and group tour packages can help to reduce the cost of intercontinental travel. Cruises also offer action-packed adventures at sea with four-day packages that are reasonably priced.
Volunteer
An estimated 42 per cent of retirees volunteer in their communities, according to AARP and Independent Sector, an organisation that partners with nonprofits and foundations. Volunteering is an excellent way to stay active, meet new people, and contribute to your community while feeling fulfilled.
Maintain your education.
You can keep your mind active in retirement by taking classes at your local university or community college. When you are retired, studying a subject that you have always been interested in but have never had the time to investigate is a great idea. Many colleges and universities offer senior citizens reduced tuition rates. Some may even be completely free.
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