Despite Social Security Covering Just 40% of Retirement Income, Nearly a Quarter of Americans Have No Retirement Plan
Do you have a retirement plan? If you are not saving up for later in life, you’re not alone. A survey prepared by the Transamerica Center for Retirement Studies discovered that 24% of workers have no retirement strategy beyond counting on Social Security income. While 67% of workers said they don’t have a written retirement plan, 24% said they have no idea at all how to support themselves once they stop working.
The 21% who say they intend to count on Social Security might be surprised to discover Social Security income typically only covers roughly 40% of your income. And studies from Chase Bank and other financial experts say that most people need roughly 80% to 90% of their working income to retire comfortably — although this figure varies depending on where you live, how much debt you are carrying into retirement and what your retirement plans entail.
The Compendium of Findings About the Retirement Outlook of U.S. Workers revealed some other facts about retirement in the U.S. Namely, 49% of workers believe they either won’t retire at all or don’t expect to retire until 65 years or older. Of those polled, 42% worry about outliving their retirement savings and investments, while 38% fear Social Security income will be dramatically reduced or even eliminated in the future. Twenty-nine percent fear they won’t have access to adequate and affordable healthcare.
While 53% of workers expect an individual retirement account, 401(k) or 403(b) plan to primarily fund their retirement, 13% of full-time workers and 16% of part-time workers believe they will have to continue working in some capacity once they reach retirement age. Whereas some want to work to maintain mental acuity and a social network, 53% said they plan to work for additional income. A smaller percentage (27%) said they may continue to work in retirement to maintain their health benefits.
If you feel you’ll need to work for additional income or health benefits after retirement age, it may be time to consider a retirement strategy. Only 33% of those polled in the survey actually have a written plan, although 39% said they worked with a professional financial advisor to manage their retirement savings or investments.
Working with a financial advisor is one of the first steps to ensuring your financial security into your retirement years. If you haven’t started investing at all, it’s never too late to start building up some sort of next egg.
USA Today recommended a simple, four-step system to kickstart your retirement planning.
- Create a conservative estimate of when you’d like to stop working — keeping your health, capabilities and the type of work you do in mind. Overestimating how long you can remain in the workforce can be disastrous to your plan.
- Calculate how much you’ll need to retire. Chase Bank recommends using 90% of your working income as a guideline, but the amount a particular individual needs varies. USA Today recommends calculating your final salary by adding 2% to your current salary for each year you’ll be working. Then, calculate 80% to 90% of your final salary as what you’ll need for retirement income. Social Security should make up about 40% of that number, and the rest will have to come from other sources.
- Speak with a financial advisor or use a saving calculator, like the one at Investor.gov, to determine how much you’ll need to save monthly, and at what interest rate, to achieve your retirement goal.
Adjust your budget — or increase your income through a side gig — to make sure you can achieve your monthly savings goals. A financial advisor can make recommendations on the best savings and investment vehicles based on your desired returns and your risk level. Consider setting up automatic transfers from your paycheck to your investment account to ensure that you’re building your nest egg each time you get paid.
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