Baby Boomers, who are retired or will retire in the next ten years or so need to consider their retirement savings more so now than ever before. Baby Boomers are thought to be those born between 1946 and 1964. That means they are anywhere from 50 to 70 years old now. For those already retired this post may not be all that beneficial to you but for those who have yet to retire it may prove extremely useful in your retirement planning. The following are four areas that Baby Boomers may want to focus on as they approach their retirement years.
Social Security, while broke, is not going bankrupt anytime soon. Social Security in its current form is not a sustainable entity but making meaningful changes in it is a difficult process for politicians. Currently, the basic problem with the system is it will be paying out more in benefits than it will be collecting from workers. This means that the trust that funds Social Security will be depleted, and it is estimated that by 2034 it will be taking in about three-quarters of what it will need to pay out.
Many proposed changes that have the intentions to strengthen the program are controversial in nature and most instances not popular with voters, especially those nearing retirement. Some of these proposed changes are increasing the retirement age, cutting benefits for higher earning people, and decrease the cost of living adjustments. As you can see, it is a slippery slope for any politician to vote for a measure that will have a dramatic effect on the very people who vote them into office.
There is no telling what will be done to fix or shore up the system but something needs to be done and soon or the system will eventually not be able to support itself.
Another factor that many people do not consider is how long they will live in retirement. A few decades ago the average person could expect to live to about 70, and now that is closer to 78. And as far as the IRS is concerned a person who retires at 65 is estimated for tax purposes to live an extra 21 years in retirement. And for IRA holders who turn 70, the IRS calculates that you can expect to live an additional 17 years. With these figures in mind, it is important to plan your retirement accordingly so that you do not run out of money when you will need it most.
For Baby Boomers who will retire in the next few years, it is vital that you understand what your retirement income will be. With that said the average male’s Social Security payment recently was $1,488 a month with females receiving $1,167 a month. Not a huge sum if you had a good paying job before retirement. And what is worse is the average 55 and older person only has $77,000 in their retirement accounts. This translates to about $3,100 a year that you will be able to withdrawal in retirement. Not exactly a helpful amount in today’s world.
One step that is helpful is to adjust to living on your projected income before retirement. This way you would be able to see if you can survive on that amount while still working. This will allow you to either work longer before you retire or save more which we will examine next.
The average person who is between the ages of 55 and 65 have saved about $136,000 in retirement funds. While better than the average of those over the age of 55 it still is not ideal. The 4% rule would mean an annual withdrawal of about $5,500 a year. No nearly enough to survive on in retirement if your only other source of income in Social Security. So what do you need to do from 55 to 65? Save more money and let it work for you for the next ten years.
The stock market averages about a 10% return over the long haul so we will use that in this example. If you were to save an additional $5,000 a year on top of your $136,000, you would end up with $440,000. A better position to be in for sure. If you were to save $10,000 a year the sum would be $529,000. And if you could manage $20,000 a year you would have a nice nest egg of $704,000.
Now, what if you are 55 and have no savings at all? Well by saving $5,000 annually at a 10% return you would have about $88,000. At $10,000 annually it would amass to $175,000. And finally, $20,000 a year would result in a retirement account of $350,000.
It is never to start late saving for retirement, but the real key is to start as early as you can and let time work for you and not against you.
For more information and if you have any questions feel free to leave a comment or contact me directly.
