Modern Retirees are making a mass exodus out of the workforce.
In fact, about 10,000 people turn 65 every day, and the youngest (those born in 1964) won’t hit retirement age for another 10 years. The problem is, they’re not financially prepared.
The median retirement savings is only $180,000, and the average retiree spends about $45,700 a year on their living expenses. That means that average retirement savings only lasts the average retiree for about four years.
The average American life expectancy is about 79 as of 2016, so let’s call that an average 14 years of retirement. As you can see, the math doesn’t add up.
What’s even more disturbing, about 45% of this population says they have no retirement savings at all.
Does this sound like you? If so, not to worry. There are steps you can take to ensure you have the most comfortable retirement possible.
Here’s a quick checklist of what to do before you retire.
- Make a spending plan
It may seem obvious, but according to a recent survey by U.S. Bank, only 41% of American households use and maintain a household spending budget, despite its effectiveness in saving money.
And the fact is when you’re living on a fixed income for 15 to 20 years, managing your expenses (and understanding what you’re spending on) is important. If you haven’t retired yet, you have a leg up. Now’s the time to figure out exactly what retirement will cost you, and allow you to plan from there.
Here are things to consider in your budget:
But if you’re not the one dealing with the finances at home, there are a ton of applications out there that will help monitor your budget for you.
2. Explore your potential healthcare costs
Your healthcare costs in retirement will depend on a variety of factors, but it’s safe to say that as you get older, these costs go up. And on a fixed income, it can turn into quite a financial burden.
According to Fidelity, the average retired couple spends about $285,000 in healthcare costs over the course of their retirement. If we assume the same 14-year retirement timeline, we’re talking north of $20,000 a year, or about $1,700 per month.
That’s more than a lot of people pay for their mortgages. In other words, it’s a huge expense.
3. Dig into your Social Security statement
There’s a lot that goes into how your specific Social Security benefits will play out. So let’s go over some of the details:
- Your Social Security benefits are based on your highest salary over 35 years (adjusted for age and at what age you take it). Since Social Security benefits depend on what age you decide to take them, remember to take your expected longevity into account.
- You can claim any time between 62–70 (with some stipulations regarding the amount).
- The Social Security Administration will give you an estimate of your Social Security benefits.
- Remember about taxes. There may be a lot of them when you factor in taxes at the state and federal levels.
Learn more and check your own statement on the My Social Security website.
4. Explore your guaranteed income options
Guaranteed income in retirement can be a powerful tool in retirement, and there are numerous options available to deliver this valuable benefit, provided you plan in advance and take steps to get it all set up.
5. Check your fees
The average American could be paying too much on their managed investment accounts. That might not seem like a big deal until you consider the actual dollars and cents that those “small” management fees turn into.
According to NerdWallet, between ages 45 and 65, the percentage of savings lost to 1% investment fees increases from 12% to 25%. Thankfully, there’s a very simple solution to start cutting down on these fees: pay attention.
Look at all your investment and retirement accounts, and all your bank statements. What kinds of fees are you paying? Are there any ways you could minimize or eliminate those fees?
A portfolio with lower fees could be focused on low-cost exchange-traded funds (ETFs) for example. Taking action now can mean big savings in retirement when you need your money.
6. Consolidate your accounts
The average Baby Boomer has six or more different retirement and savings accounts at various institutions. And for married boomers, that number can easily hit 10 between you and your spouse.
For one thing, managing accounts all over the place like that open you up to mistakes and can lead to simply losing track of money. At the same time, having all your retirement finances consolidated in one place will give you a clearer picture of all your finances. Plus, you can substantially lower your fees by putting everything in a single account.
Ready to dig in deeper? Use our interactive retirement planning tool to help you navigate decisions like when to elect Social Security, and how to turn your savings into a steady retirement income.