When it comes to retirement planning, one of the most frustrating aspects of the process is trying to predict what societal and economic conditions will be decades in the future.
Generally speaking, it is impossible to know exactly how much a person will need in order to retire (or at what age they will be able to stop working) due to the uncertain nature of future prices and societal developments which may affect such considerations.
But if you have found yourself wondering about what kinds of conditions you are likely to encounter, it may help to take a look at the statistics and see what is happening with the average and future retiree.
The Average American Retires Broke
In a previous article, we looked at a scenario in which the future retirees’ goal was to save $500,000 before their retirement date. But according to many different studies, the average American is not on track to save anything near that amount before retirement.
For example, according to the Employment Benefit Research Institute, about 46 percent of Americans currently have less than $10,000 saved for retirement. Now, this figure does take into account younger Americans, but considering the large portion of older Americans in the workforce, this statistic is truly alarming.
Add to that the fact that the AARP says that 40% of baby boomers plan to work until they die, and it becomes clear that the average person is either not planning to retire, or simply won’t have the money when it’s time.
If You Had $1 Million
Though the previous statistics indicate that enlarged portions of the American population will not be able to retire when they turn 62 or 65, what about those who have saved and invested their retirement nest eggs, guiding it to the coveted $1 million dollar level?
According to a Research Affiliates report, those who retired in the 1980s could count on their $1 million retirement savings lasting over 30 years, due to strong rates of return and relatively low inflation. But now, due to extremely low interest rates, retirees can expect for a $1 million dollar retirement savings to last 25 years or less.
So it’s not just that the average American is having a difficult time saving for and envisioning retirement, but even those who have saved are facing diminishing returns on those savings.
At What Age?
One of the most important components to planning for retirement, and ensuring that you actually enjoy your retirement years, is retiring at the right age.
According to a 2013 MetLife survey of the oldest baby boomers – those born in 1946 - nearly 25% had retired by age 56. The average age of retirement for that group was 59.5 years old.
By contrast, most Americans now expect to retire by age 67, which is an increase from the previous average of 63.
Assuming the average retiree will live for an additional 25 years after retirement, this change, if realized, would mean that today’s retirees will work 30% of their retirement years when compared to the oldest baby boomers.
Why Is This The Case?
The reasons for these changes can be traced to the fact that Americans are currently not saving the quantities of money needed to fund a full and timely retirement.
Looking at the economic situation in the country, many people have lost faith that they will ever be able to retire comfortably.
And with recent scandals in the stock market and the economy and large, many future retirees have become wary of making the kinds of investments which are needed to fund their retirements.
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