| Which retirement are you anticipating?
You’re likely in for a rude awakening.
Very rude.
A television channel in the UK asked people to spend a week living on the amount they’re set to have after retirement - based on their current savings rate - as part of an experiment.
According to one 47 year old participant the results were more than a bit surprising.
“It is actually a real, real shock…” Rachel Newton noted as she opened an envelope showing how much she and her partner could spend on groceries for the week. The amount was £24 (approx $31 at exchange rate of 1.29).
She and her partner normally spend £80 (approximately $103) per week.
After a week living on a much lower income Rachel noted, “I can’t live like this when we’re old and retired.” She and her partner Aaron commit themselves to not spending their final decades living as they did during the low spending week.
The Challenge
If you suddenly found that you had to live on a much lower income for a month, you’d probably just suck it up and get through it.
Maybe splurge a bit on the other side to make yourself feel better.
But what if living on a much lower income became your new normal? Worse, what if that new normal becomes your reality in your 60s, 70s or 80s?
That’s the question I’ve been asking folks for years now…
I’ve yet to hear a good answer.
True, plenty of people say they will just live more frugally in retirement, work until they drop and/or commit to saving much more aggressively.
Those are all fine answers I suppose… but there’s a problem… As evidenced by the Brits above, most people think they are living frugally until they have their food budget cut by more than half; Ageism is a real thing… most employers don’t want to keep, much less hire folks over 60; and even if you can save more aggressively, most people won’t even come close to saving enough to secure a comfortable retirement.
Don’t believe me?
The Numbers
That’s fair… after all most of you don’t know me like that. So let’s do a little simple math shall we?
Let’s put aside for the moment my strongly held feeling that it’s nearly impossible to save for an uncertain event (do you know exactly how much money you’ll spend next year? Though not). So assume the often suggested number of $1,000,000 will be enough to get you through your Golden Years. Ignoring post retirement growth, inflation, taxes and fees, that number is just enough to get you through the 20 years from 65 to 85 at a rate of $50,000 per year give or take.
Admittedly, that’s not bad I suppose… a bit over $4,000 per month. Just don’t book that Round The World vacation you’ve wanted to take.
But there’s another problem.
Are you anywhere near $1,000,000 in savings? If not do you have a reasonable path to get there? According to the Economic Policy Institute, “(d)epending on how you do the math, 32-61 year old head of households averaged around $120,809.40 in retirement savings.” Since in this instance, age is far more than a number, let’s have a look at those closer to the back end of that range.
Households headed by a 50-54 year old averaged $137,710.41 in savings with a median of $11,000, while households in the final retirement stretch headed by a 60-64 year old averaged $229,101.05 with a median of $16,000.
Using these numbers and a basic retirement calculator (available all over the internet), let’s look at a couple of scenarios.
First, Person A, a 50 year old who plans to retire at 65, has $150,000 in retirement savings and wants $50,000 in annual income during retirement…
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