They say there are two certainties in life; death and taxes. Whether the word certainty applies is a moot point but there are some realities in the USA today that appear to be unavoidable, and miserable retirement for many is on the list.
A recent study of 1,000 people over the age of 18 identified almost 60% happy at their ability to enjoy a comfortable retirement because of their ability to save sufficiently. With life expectancy rising, many can expect to live twenty years or more after retirement, so it is a challenge to have a large enough fund to do that. A common way to calculate how big a fund you will need is to take 4% per year of your fund’s total as your potential annual spending.
These 60% are arguably far too optimist when average savings in society today are analysed further. Only half actually knew how much they would have in their fund when they retired. While Social Security benefits help support retirement they are far from sufficient for a comfortable retirement; no, very far!!
Statistics reveal that the average annual spending of a couple who has retired is around $45,000 with benefits paying up to half of that depending on the couple’s working history. It means that a couple need around $500,000 in their fund if the 4% rule is applied.
Too few Americans have anything like this and many of them are of an age where it would be impossible to accumulate that amount, simply because of time. With the chances of hitting the jackpot one in many millions the reality in the USA is extremely disturbing. It is not helped by other facts that have been revealed by further questioning in TIAA’s Lifetime Income Survey:
- Of the 1,000 people surveyed around 400 stated that they were saving only 10%, often less, of what they earned each year towards retirement. That 10% is only the starting point on widely-acknowledged advice that recommends rising up to 15 and then 20% in later years.
- Almost 30% admitted they were not saving anything at all. Surprisingly half of them said they had no worries about retirement so there is a clear issue here.
- 500 or so said that their first financial goal was to create a monthly income for the years of retirement yet almost as many did not appear to have any idea or plan about how this could be achieved.
- There was a feeling that spending would drop by a quarter once they retired. There are some obvious savings on commuting as an example but what about increased medical bills that many face as they get older? There is a counter argument to spending. When people have more time on their hands it is likely they actually will spend more as they do on holiday during their working lives.
Those Americans that understand the conflicting evidence within this survey can act to improve their futures but time is a constraint. The number of Americans keeping a proper budget is just in excess of 30% if a Gallup poll of 2013 is to be believed. It is an essential part of good financial management.
Debts need to be reduced, especially expensive debt such as that on credit card balances. Personal loans are a cheaper way to organize your finances and can be used to pay off card balances by regular instalments which can be entered within the budget.
Living to a budget takes self-discipline though not necessarily sacrifice. You have to be realistic or you will be discouraged when preparing your budget. There is the chance of savings on utilities, insurance and telephone with comparative websites doing much of the research for you.
The aim behind living to a budget is saving each month towards the future. You will know how you stand at any one time and that clearly helps you make good decisions about every aspect of your life. There is nothing wrong in getting expert advice as well.
The good news if there is any is that the younger generation appear to understand the limitations of the Social Security System and are prepared to do something about it. The bad news is that older people don’t and time is not on their side.
