Will you have enough
money to make ends meet?
Provided by Benjamin Bogetto
You may have heard that
people spend less once they are retired. Statistically, that is true. The question is whether a
retiree has enough income to meet his or her expenses.
Ideally,
retirees should be able to live comfortably on 70-85% of their end salaries and
draw their retirement fund down no more than 4-5% per year during a 30-year
retirement. Are these two objectives realistic for the average retiree
household?1,2
According
to the most recently published Bureau of Labor Statistics data, a household maintained by someone 65 or older had a mean income of $46,627
in 2015 and a disposable income of $42,959 after taxes. That average retiree
household spent an average of $44,664 in 2015. So, on average, seniors spent
more than they had on hand.2,3
Basic
math tells us that 46,627 is roughly 70% of 66,500 and roughly 85% of 55,000.
So, a retirement income of $46,627 would correspond to about 70-85% of a
typical middle-class salary in 2015. In other words, it appears all too easy
for the middle-class worker to transform into the financially challenged
retiree.
Why is the average retiree household spending
more than its net income? Three
possible reasons come to mind. One, the cost of living may be rising faster for
retirees than some assume. Social Security bases its cost-of-living adjustments
to retiree benefits on changes in the CPI-W (Consumer Price Index for Urban
Wage Earners and Clerical Workers). Some economists think Social Security
should use a different yardstick. Two, annual health care costs may suddenly
jump for some seniors. Three, it is not unusual for new retirees to spend more
than they anticipate as they travel and enjoy life.4
How do average retiree expenses break down? Housing costs accounted for $15,529 of that aforementioned $44,664 in
2015 household expenses. Transportation costs took another $6,846. Health care
costs made up $5,756 of the total ($3,900 of that went to health insurance,
$672 for medicines). Another $1,298 went for mortgage costs.2,3
When you spend more than
you make in retirement, you dip into your savings. That fact takes us straight toward a
larger problem.
Most baby boomers are
approaching retirement with a savings shortfall. The 2016 Employee Financial Wellness Survey from PwC (PriceWaterhouseCoopers) found
that 50% of baby boomers had less than $100,000 in a
workplace retirement plan. So, drawing down that amount by 4% a year would
bring them less than $4,000 in annual retirement income. Of course, some of
these employees will be able to tap IRAs, brokerage accounts, or income streams
from other sources – but when your workplace retirement plan savings are that
scant after age 50, other sources must compensate mightily. For many retirees,
Social Security will not take up the slack. The average projected monthly
Social Security benefit for 2017 is just $1,360.2
From the numbers in this article, you can
glean that the average American retiree faces more than a little financial
pressure. If you are a baby boomer who has saved and invested for decades and
wants to work longer to give your invested assets a few more years of growth and
compounding, you may have above-average prospects for a comfortable retirement.
This material was prepared by MarketingPro, Inc., and does not
necessarily represent the views of the presenting party, nor their affiliates. This
information has been derived from sources believed to be accurate. Please note
- investing involves risk, and past performance is no guarantee of future
results. The publisher is not engaged in rendering legal, accounting or other
professional services. If assistance is needed, the reader is advised to engage
the services of a competent professional. This information should not be
construed as investment, tax or legal advice and may not be relied on for the
purpose of avoiding any Federal tax penalty. This is neither a solicitation nor
recommendation to purchase or sell any investment or insurance product or
service, and should not be relied upon as such. All indices are unmanaged and
are not illustrative of any particular investment.
Securities offered through First Heartland Capital, Inc. Member FINRA/SIPC
Bogetto Financial is not affiliated with First Heartland Capital, Inc.
Bogetto & Associates does not provide legal or tax advice. These topics are discussed in conjunction with your CPA, Tax Advisor and Attorney.
Citations.
1 - cbsnews.com/news/how-much-retirement-income-do-you-really-need/
[3/3/16]
2 - fool.com/retirement/2016/12/18/how-much-money-does-the-average-baby-boomer-need-i.aspx
[12/18/16]
3 - bls.gov/cex/2015/combined/sage.pdf [8/16]
4 -
fool.com/retirement/2016/09/24/heres-why-your-social-security-check-is-hardly-goi.aspx
[9/24/16]
Financial Health...For Now & Tomorrow
Contact us Today
Website - www.bogettoandassociates.com
Telephone - 314-858-1602
Email - peter@bogettoandassociates.com
10805 Sunset Office Drive, Ste. 202
St Louis, MO 63127
Website - www.bogettoandassociates.com
Telephone - 314-858-1602
Email - peter@bogettoandassociates.com
10805 Sunset Office Drive, Ste. 202
St Louis, MO 63127
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