With the way the economy has been looking lately, many of us might feel as though we're teetering on the edge of a retirement cliff. Personally, I'm not quite there yet, but I can at least sense myself nearing the edge. Therefore, I found a recent study put forth by Wells Fargo somewhat interesting. This study looked at several questions that I myself find pertinent to the preparation for retirement and that I have found myself pondering as I attempt to plan for a retirement future that is less than certain.
We're Responsible for Our Retirement
I'm well aware that no one is going to care about my money more than me. Therefore, when it comes to my retirement, I'm the one who will be responsible for it. With no pension, Social Security uncertainties, and no employer-sponsored 401(k), I'm fully aware that I'm largely on my own when it comes to retirement planning. But maybe this is a good thing, as it forces a big reality check on me knowing that there is no bailout for my retirement. According to the Wells Fargo study:
"Three quarters (75%) of Americans describe their calculations for retirement to be some sort of a guess and 22% who describe their planning efforts as detailed and based on "calculations."
And, "When provided with a list of activities, middle class Americans say that in the last 12 months, they've spent the most time 'planning' a home remodel, followed by planning a vacation. Planning for retirement fell to third place in the list of priorities."
First off, I'm not "guessing" when it comes to retirement. I have multiple spreadsheet outlines to help guide my asset totals, possible Social Security future benefits, and investment income tracking. Secondly, I'm not putting home renovations and vacations ahead of retirement planning. While those are certainly aspects of my life, I certainly don't put them ahead of my retirement future as my top priorities.
What Will We Need in Retirement?
According to Wells Fargo, "Middle class Americans say they will need a median of $300,000 to support them in retirement, but to date, have only saved $25,000 (median)."
This is a scary revelation if indeed true. However, I've calculated our (my wife and I) retirement needs at close to $600,000, which actually comes close to the individual American median reported by the study. A portion of this estimate though is based upon receiving 75 percent of our future Social Security benefit estimates. Therefore, should there be sweeping adjustments to the Social Security program over the next 30 years, this estimate could change drastically.
How Does Social Security Fit in?
Speaking of Social Security, the Wells Fargo Study finds that, "Middle class Americans between the ages of 25 and 75 expect to begin taking or began taking Social Security payments at the median age of 65 and estimate payments will cover a median of 25% of their monthly retirement income."
Our outlook on Social Security remains positive but realistic. We adjust our estimated benefits by 25 percent to account for the shortfall in funding that's currently looming. However, unlike the study findings, we are planning to delay taking Social Security (at least at this point) until age 67, thereby hopefully pushing the amount of our retirement costs that we expect this benefit to cover up to around 31 percent. This will give us a bit more leeway in our retirement spending and help take some of the burden off the percentage of income our investments must cover.
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The author is not a licensed financial professional. This article is for informational purposes only and does not constitute legal or financial advice. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.
Wells Fargo. "Wells Fargo Study Finds Middle Class Americans Teeter on Edge of Retirement Cliff". October 23, 2012. https://www.wellsfargo.com/press/2012/20121023_MiddleClassRetirementSurvey. November 30, 2012
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