Under 40? Adjust Your Retirement Savings Rate to Properly Cover What Social Security Won’t
Thirty percent of workers under 40 believe they can live on just 60% of their pre-retirement income, according to the recent Goldman Sachs Retirement Survey & Insights Report. GenX had a somewhat more realistic view of their post-retirement needs, saying they expected to need roughly 80% of their current salary to live. Even so, workers across generations cited “leaving a steady paycheck” as their biggest concern about retirement.
It’s true that your post-retirement living expenses may be lower than they are as a working adult. This is especially true if you are currently raising children who will be grown and self-sufficient by the time you retire, if you pay off debt (including your mortgage), and you are no longer contributing to your retirement account. But if you want to live a comfortable life that may include hobbies, travel or dining out, you may want to adjust your expectations about your necessary retirement income.
J.P. Morgan says that retirees currently spend roughly 90% of their pre-retirement income. And $300,000 of that, per couple, often goes to out-of-pocket healthcare costs, USA Today reports. Medicare only goes so far.
If you’re under 40, however, there’s still plenty of time to adjust your retirement savings plan to meet projected needs. Remember, Social Security benefits should replace roughly 40% of your current income. You’ll want to increase your other retirement savings so that you can generate enough money to replace about 50% of your current income.
Of course, if you retire to a state with a cheaper cost of living, you might need less than that to live on.
If you’re not sure what that looks like, consult with a financial adviser to determine how much you should be saving and where you can park your money to generate the return-on-investment you need in the years before you retire.
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