The Average American’s Retirement
Have a Retirement Target
Improving your marksmanship skills without a target would be an exercise in futility. You won't be able to gauge your progress without a clear target. Similarly, having a well-defined plan and a clear target can be incredibly beneficial if you're planning to retire.
While you may not aspire to be ordinary, knowing what the average American is doing can be a good starting point for making informed decisions about your future. At the very least, it can provide valuable perspective and motivation.
Talking about Money is a Taboo
In the United States, people often feel more comfortable discussing their romantic relationships than their finances. As individuals tend to be quite guarded about their financial matters, it is no surprise that the concept of retirement planning can seem perplexing to many.
Nevertheless, understanding the typical sources of retirement income and expenses can help us unravel this enigma. To achieve this, we can examine the average data provided by the Social Security Administration.
What Are the Average Income Sources in Retirement?
Did you know that the average retirement income in America, according to the Social Security Administration, is $44,375? This income typically comes from a combination of sources, with the top three being:
Social Security (33.2%).
Earnings (32.2%).
Pensions (20.9%).
Considering these sources when planning for retirement is essential to ensure a comfortable lifestyle in your golden years.
Source: Income of the Aged Chartbook, 2014, SSA Publication No. 13-11727, Social Security Administration
When you plan for retirement, there are certain aspects that you should take into consideration. One of the most important things to remember is that you will need at least 70% of your pre-retirement income to maintain your lifestyle in retirement.
While Social Security can provide a portion of your retirement income, it may not be enough. The average American relies on Social Security for only 33% of their retirement income. This highlights the critical role of personal savings in retirement planning.
It's vital to remember that even small contributions to your retirement fund can add up over time. For instance, if you put away just $11.54 per week for 30 years at an annual effective rate of 8%, you can accumulate savings of up to $75,015. This demonstrates the importance of making small changes in your daily and weekly habits to achieve your retirement goals. If you want a comfortable retirement, it is crucial to start saving as much as possible for retirement as early as possible.
What Are The Average Top 3 Expenses in Retirement?
Below is the Full List from the Social Security Administration
Source: Expenditures of the Aged Chartbook, 2015, SSA Publication No. 13-11832, Social Security Administration
Housing
As people age and approach retirement, it's essential to consider the various housing expenses. While many may believe paying off their mortgage means they no longer have housing costs, this is far from the truth.
In reality, there are still several expenses associated with housing, including maintenance, repairs, insurance, and property taxes, which can add up to around $15,000 annually for the average retiree. To manage these costs, some retirees may choose to downsize or move into a retirement community where these expenses are included in the fees.
Transportation
Transportation can be a significant expense for retirees, with an average of about $6,800 spent on it. Even though you may not be commuting to work anymore, you will still need to spend money on maintenance, repairs, and gas for your vehicle.
Moreover, you may want to visit your grandkids or take them on outings, which will require transportation expenses. It's crucial not to overlook this expense in your retirement planning since cars have a finite lifespan and will eventually need replacement.
Healthcare
It's worth noting that health care is the third most significant expense regarding retirement planning. However, it's crucial to consider that the long-term inflation of medical costs has been around 5.28%
With the increase in life expectancy, there will likely be an increase in healthcare costs. Thus, planning and preparing for this expense is essential to ensure a comfortable retirement.
401(k)s Plans and Financial Wellness
As an employer, you have a significant role in ensuring the financial stability of your employees. You can achieve this by offering financial wellness education programs that help your employees navigate the complexities of personal finance and improve their financial literacy.
You can seamlessly integrate these programs with your 401(k) plan, providing your employees with valuable resources and knowledge to make informed decisions about their finances. This can ultimately lead to long-term financial success and greater overall well-being for your employees.
To create and maintain these types of programs, you can seek help from wealth management professionals and 401(k) advisors who can guide you through the process and ensure that your employees receive the best possible financial education.
Conclusion
When it comes to financial planning and preparing for retirement, it's crucial to have a clear goal and a target to work towards. While everyone's financial situation is unique, it can be helpful to gain some perspective by looking at what the average American is doing. Making small changes to your spending and saving habits today can significantly impact your future financial security.
If you're responsible for managing a retirement plan for employees, it's also essential to educate them about the importance of taking action now. Encouraging them to start saving early and regularly reviewing their investments can help set them up for success.
If you're unsure about your retirement plan or want a second opinion, our team is here to help. Don't hesitate to reach out to us for expert guidance and support.
Bibliography
Social Security Administration. (2016, April). Income of the Aged Chartbook, 2014. Retrieved from ssa.gov: https://www.ssa.gov/policy/docs/chartbooks/income_aged/2014/iac14.pdfSocial Security Administration. (2018, September). Fast Facts & Figures about Social Security 2018. Retrieved from ssa.gov: https://www.ssa.gov/policy/docs/chartbooks/fast_facts/2018/fast_facts18.pdfYCharts. (2020, March). US Health Care Inflation Rate:4.73% for Mar 2020. Retrieved from YCharts: https://ycharts.com/indicators/us_health_care_inflation_rate