By the time you get to retirement age, you want to have as much saved up as possible. Unfortunately, Americans just aren’t hitting their savings objectives. It’s complicated because you don’t know how long you will live, what the tax rate will be, or how severe inflation will be. Even worse, many aren’t even aware of a ballpark figure as to how much they will require in retirement.
Essentially, an enormous gap exists between what’s
needed and what people
have or
will have.
We are in the midst of a savings crisis.
It may be impossible to pinpoint precisely how much you’ll need; it all depends on your income and expectations. But if you expect a glitzy retirement because you’re a high-earner now, you may be in for a shock.
Many would agree that $190,000 a year is a decent income – unless you live in New York or another pricey city. But what will it take to obtain that yearly income in retirement?
If you believe it will last 25 years, you’ll need about
4.8 million dollars…
before taxes.
So, assuming a 30% tax rate, you’ll
actually need
$6,900,000!
So, how close to reaching that goal are you? Do you believe it’s achievable with your current investment horizon and savings rate? If so, then great! But if you don’t, you’re in the majority.
And if you look at historical tax rates, it is easy to imagine them going considerably higher, possibly even to 50%. If that were the case, you would need
$9,600,000 saved up!
If that doesn’t astound you, I don’t know what will.
So, how much are Americans saving?
Americans are saving just
one-third of what they will need in retirement. Just a third! How many will run the risk of running out of money and end up depending on loved ones and social security? If you’re used to living off of $190,000 a year or more, you certainly won’t be able to maintain your current lifestyle.
Even supplementing your retirement income with social security will be more difficult once it reduces its benefit to 75% of scheduled payments after 2035, at which point it runs out of reserves.
Unfortunately, it gets bleaker than that. According to the personal finance website GOBankingRates.com’s
poll on retirement figures, only 13% of Americans between the ages of 35 and 64 have at least $750,000 in savings. Only 4% of Americans have over $500,000.
If Americans were able to keep more of their investment funds allocated to dividend-paying ETFs and Mutual Funds, then
maybe they could reach such lofty savings goals. The problem is that stock-based investments become too risky approaching retirement age. As you get older, you should rebalance your portfolio to a more conservative strategy to reduce stock market exposure that could lead to a portfolio-damaging
poor sequence of returns. This is done by allocating more funds to bonds. But bonds don’t make up for the loss of profit that stocks would bring and that your retirement account so urgently needs!
You can’t risk keeping your money in stocks, and bonds aren’t potent enough to get you to your goals. It really is a conundrum.
I don’t say all of this to frighten you. I genuinely enjoy helping Americans obtain a successful retirement, and I want you to know that there are solutions.
If you’d like to contact me for a personal consultation to craft a customized solution, click the schedule a meeting button below.
