How to Retire on Your Own Terms
This just in!
“Forty-two percent of Americans will retire broke.”
That’s according to a recent study by GOBankingRates. In fact, 42% of younger Americans have less than $10,000 saved up for retirement.
Older Americans who are already retired or fast approaching retirement are getting more and more pessimistic about their financial future.
Adults over 64 years old were 40% less optimistic about their financial prospects compared with folks under the age of 35.
As a result, older Americans are cutting back on spending in hopes of making their nest egg last longer. The average adult age 60 or older will cut spending by about 2.5% every year in retirement, or 20% over the next decade, according to another study by United Income.
“Only 18% of households with members age 60 and older make any withdrawals from their retirement accounts in a typical year,” reports USA Today, citing a National Bureau of Economic Research study.
By contrast, a long-standing rule of thumb among financial advisers advocates a 4% withdrawal rate as a reasonable target.
Using that rule, a diversified portfolio should provide enough income to last 30 years.
So many baby boomers, a key demographic group that accounts for a big share of U.S. consumption, are getting more and more frugal with their spending.
Shifting to younger demographics, two-thirds of working-age Americans believe they’ll need less than $1 million saved up for retirement, with over 20% of them thinking they’ll need $250,000 or less in savings.
But the truth is even $1 million may not be enough to fund a comfortable retirement for 30 years or more. Younger folks especially need to raise their savings and investing goals.
That’s because many workers don’t have access to pension plans anymore. Only 13% of current retirees have a traditional pension that guarantees them income.
For the rest of us, it’s critically important to take full advantage of your workplace 401(k) plan or contribute to an individual retirement account (IRA).
Here’s a wake-up call for those who aren’t saving enough: Fidelity Investments, the largest retirement plan provider in the U.S., suggests that you should aim to have 10 times your final salary in savings or investment accounts to retire comfortably at age 67!
Attitudes about investing are changing too. Older Americans are growing more pessimistic about growing their wealth via traditional investments like stocks and mutual funds.
According to United Income, the average older investor believes the stock market has only a 50/50 shot at increasing every year over a 10-year period.
In reality, stocks have increased every single year since 2009. When you include dividend income, it’s nine years in a row.
If you’re among those worried that you may not have enough saved and invested, what’s the solution?
While it’s impossible to give one-size-fits-all financial advice, the main thing to remember is don’t get too conservative too soon with your investing.
Granted, turbulent markets like we’ve seen lately make all of us more cautious, but by following a common-sense investment strategy, you can grow your wealth more securely and still sleep at night.
For example, I’m a big fan of investing in high-quality dividend-paying stocks, as readers of my Infinite Income letter will attest. And it’s no surprise to me that higher-quality stocks have been outperforming both the S&P 500 index and low-quality “junk” stocks over the past year, as you can see in the chart.
Bottom line: If you’re worried you may not have enough savings or investments for retirement, you’re probably right.
Do everything you can to save and invest more. But don’t speculate in a desperate attempt to play catch-up.
Investing your serious money in the latest cloud computing IPOs or cryptocurrency blockchain stocks is for blockheads and could be hazardous to your wealth.
Instead, stick with the tried-and-true tortoise-versus-hare approach with quality dividend stocks for more consistent performance.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch