I have good news and bad news. Okay, here’s the bad news: According to the Economic Policy Institute’s retirement study of 2016, the average amount saved for purposes of retirement is only $5,000. This is catastrophic when you consider that the actual amount of money needed to retire is five times your annual salary.
Now the good news. It has two parts to it:
- If you subtract out of this dismal statistic anyone who has saved nothing (or this measly $5,000) for retirement, the average amount saved for retirement jumps to over $65,000. Okay, this number isn’t all that great either, but it’s a whole lot better than $5,000.
- Add to that $65,000 a Social Security benefit. This income replaces 65 percent of a $30,000 annual salary. Okay, so Social Security is not going to be much for a person who was making $120,000 annually when working because that benefit equates to only a 28 percent replacement. But, and this is important, a person can still live okay on 65 percent of a modest working income in retirement. Those who have not planned for retirement who have earned a bigger annual salary are going to have to cut way back on what they’ve been used to doing and living on if all they have is this Social Security benefit to count on. But the point is, a person can still manage on a smaller amount. Obviously, if you are one of the people who has never had a large annual salary in your life, then it won’t be as big of a stretch.
I give this encouragement with a small caveat. We don’t really know 
what’s going to happen to Social Security going forward. The federal government informs us that the fund will be defunct in about 15 years, so those who retire later without having planned may not be able to count on this Social Security benefit. However, for the first wave of Baby Boomers who are now retiring, it looks like they may be able to get by if all they have is Social Security and at least $65,000 in the bank.
The bigger point I’d like to make is that rather than just get by, why not learn how to be a saver right now so you can have more than just a modest retirement that is in constant jeopardy?
Here are some simple steps to take RIGHT NOW that can change your retirement outlook in just a few short years:
- Learn how to control spending to the point that you have a cash surplus each month. The only way to do this is to create a Spending Plan (this is not a budget). Now you just jumped out of the “average retiree” pool and into the “I’ve got something to work with!” pool.
- Within that Spending Plan, create a spending category for savings. This is where you will track each month what you pay to yourself in the form of savings. Initially maybe all you can pay yourself is 1% of your monthly income, but your goal is to work up to 10% each month.
- Next you will create a Debt Plan where you can eliminate all your debt (including your mortgage), which is mathematically possible for anyone, no matter how bad their debt is, in 10 years or less. As you get out of more and more debt, you will apply these debt payments to your “savings” category in your Spending Plan, increasing the amount you can accumulate towards retirement rapidly.
- Finally, you will create a Retirement Plan, where you can learn just exactly how much money you need to be saving in order to create a predictable retirement you cannot outlive.
Now who doesn’t want that kind of retirement as opposed to one where you can get by, but barely? To learn more contact me for a no-cost consultation. I would be happy to give you more information about how to truly prepare for retirement, whether you have five years or 35 to do it: peter@moneymastery.com. And be sure to visit www.moneymastery.com for more information.
