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Where’s Your Retirement Savings ACTUALLY Going?

Where’s Your Retirement Savings ACTUALLY Going?

How much income will you need in retirement?

Forget about the widely accepted rule-of-thumb that you’ll need 70% of your pre-retirement income to maintain your standard of living.

Let’s talk real dollars and cents.

The average American retiree spends about $46,000 a year, according to the Bureau of Labor Statistics. That works out to $3,800 a month.

Now let’s look at how that money is spent.

Source: Bureau of Labor Statistics

Housing is your biggest expense as a retiree. And even if you own your home free and clear, some expenses never disappear, These include real estate taxes, utilities, insurance, and repairs/maintenance.

Transportation is your next big expense. It’s easy to overlook when planning, but transportation expenses continue will into retirement. These include gas, insurance, licensing, and repairs.

Healthcare is your next biggest cost. Furthermore, healthcare costs generally increase after retirement since you no longer receive employer-sponsored health insurance. Common expenses include, Medicare Part A & B, Medigap insurance premiums, prescription drugs, and deductibles.

Food, after healthcare is the next expense to consider.The good news? You’ll spend 20% less on food than while you are working. My guess is that people eat out less once they have more time on their hands to prepare home-cooked meals. Cheaper and healthier is a win-win.

Your next expenses are personal insurance and/or pensions. Some folks continue to work even after they hit 65; some because they want to but many because they have to due to inadequate savings. If you work, you will pay Social Security and payroll taxes.

Don’t forget about those cash contributions either!

Cash contributions include gifts to charities or gifts to children/grandchildren.

Last but not least, we have entertainment expenses. Retirees like to have fun too!

Golfing, travel, hobbies, performing arts, etc. All this costs money.

Of course, spending varies dramatically from person to person, but this breakdown is a good starting point to estimate what your retirement expenses will be.

Now, how about the income side of the equation?

Most Americans — other than government workers — don’t receive traditional pensions anymore and instead rely on personal savings and Social Security.

How much can you expect to receive from Social Security?

The Social Security Administration paid out almost $1 trillion last year to 62.4 million people. The kicker? Not all of that was for retirement checks.

The average Social Security check is $1,294 a month, but that’s across the entire Social Security system and includes things like disability and survivorship benefits.

The average Social Security retirement check is $1,411 a month.

If you’re married and receive two Social Security checks, the goods news is that the combined total will approaching $34,000 annually. This means that you’ll only need to generate another $13,000 a year from other sources to reach that ‘average’ retirement spending budget of $46,000 a year.

If you work backwards and assume that your portfolio can generate a 4%, you’ll need to save around $330,000.

Since we’re talking about averages, the average 401k balance according to Fidelity is well below that $330,000 target. Here’s the most current numbers.

  • Ages 40 – 49: $91,000
  • Ages 50 – 59: $152,700
  • Ages 60 – 69: $167,700

Clearly, the average pre-retiree needs to do one of two things:  (1) save more or (2) make their savings work harder and grow faster.

I’ve shared plenty of ideas in previous Wealth Watch articles to help you save more, but #2 is my true speciality.

And if you weren’t aware, my Infinite Income service recommends rock-solid companies with superior growth prospects that pay big, fat dividends, which is exactly the way you make your money work for you.

The bottom line is how much you save and how well you invest those dollars will determine what age you can retire and how many pennies — if any — you’ll have to pinch after you retire.

Here’s to growing your wealth,

Mike Burnick

Mike Burnick
Chief Income Expert, Mike Burnick’s Wealth Watch

Mike Burnick

With over 25-years of professional investment experience, Mike Burnick was a Registered Investment Adviser and portfolio manager responsible for the day-to-day operations of a mutual fund. Mike joined Weiss Research in 2002 as an analyst and writer, and in 2008 was named Director of Research and Client Communications at Weiss Capital Management, where he assisted...

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