Most Americans look forward to their retirement. After long years of work, retirement offers a multitude of possibilities, whether we want to travel, study, continue working in some capacity, or just relax. However, we may feel some uneasiness at the same time — with people living longer and longer, retirement may stretch on for 25 years or longer. Will our retirement savings last for two or three decades? Will our retirement income be enough to live on comfortably?
We can start by comparing our income with the national average. And in the United States, in 2008, the average income for individuals aged 65 and older was $29,214 (according to the Employee Benefit Research Institute). This is up from $28,134 the previous year. Numbers are higher for seniors with university educations; holders of bachelor’s degrees aged 65 and older brought in $49,948 per year, and holders of higher degrees $62,777.
Median household income in the United States in 2008 was $46,326; for two-income households, the figure was $67,348. From these figures, it’s obvious that most Americans take a real hit in income when they retire. Having a college degree or graduate degree helps — the higher earning power commanded by college graduates enables them to save more, and often to continue earning at least part-time during retirement — but it’s clear that most Americans must make do with greatly reduced incomes when they retire.
The biggest factor contributing to this problem is the very low rate of household saving in the United States. Most studies show that two-thirds of Americans aren’t saving enough for their retirement, and fully half of Americans aren’t saving anything at all. Most of these Americans won’t have the benefit of a defined-benefit retirement plan from their place of employment — a fixed pension that pays out a monthly amount from retirement to death, often with a survivor benefit for a surviving spouse. Many will rely largely on Social Security, which was never meant to provide for a retiree’s full needs in retirement. The average monthly Social Security payment is around $1,000, which, without supplementary income, puts one well below the poverty level.
The only way to avoid such shortfalls in retirement is to save. Begin by estimating how much money you’ll need each month to enable a fulfilling and satisfactory retirement. Many people indeed make do quite happily on very little. Then estimate your Social Security income, by visiting the SSA’s website or visiting a local SSA service center and consulting with a staff member. And then initiate a program of monthly saving. If you work for a company that offers a 401(k) plan, then contribute as much as you can afford, up to the annual contribution limit. Be sure to contribute at least as much as required to qualify for any matching employer contributions — that’s free money. If you get started early and contribute during your entire working life, your 401(k) together with Social Security will likely be sufficient to meet your retirement needs.
If you find you can save more, then open an Individual Retirement Account (IRA), to which you can contribute up to $5,000 a year ($6,000 a year after you turn 50). And put any additional money in a taxable savings account, though try to stick to investments that are tax-friendly. Get started as early as you can, so your savings will have years to grow. If you start saving even modest amounts as early as your twenties, your next egg can grow to $1 million or more by the time you hit retirement age.
Don’t count on winning the lottery, or the generosity of a long-lost rich uncle, to fund your retirement. Saving for retirement is a lengthy, incremental process. Get started early.
An investment calculator can be a wonderful tool if you are contemplating investing but are not sure which scheme will give you the best financial rewards. With so many companies now advertising on the internet, it is easy to gain access to a great many investment opportunities.
Many companies who are available to handle your investments will feature an investment calculator on their website. These are usually easy to use and will give you an idea of what return you can expect if you put your money with them. The calculator is there to help you get a clear picture of what you can expect back after a certain length of time. There are many variables which you can enter into the equation and all of these can be taken into account when calculating the results.