The retirement dream is something that most people look forward to. They want to be able to spend their days doing what they want while having checks flow in from their retirement savings. When those checks start coming in for many people, their average retirement income is substantially lower than what they were expecting. This has forced some retirees to cut back on their retirement dream and live on a lot less money than they thought they were planning. Let’s take a look at the current average retirement income in the US.
Average Retirement Income in the United States
Did you know that the average retirement income in the United States is just $29,000 a year? That is a far cry from the dollar amount that most people would have probably assumed that it would be. Over the past few years, seniors have been able to retire with under $30,000 in annual income flowing into their households despite the rising costs. But this amount barely covers enough to pay the bills, so some retirees have gone back into the work force.
You can learn from the experiences of others. Long story short, you need to save more money than you think you will need for retirement. Financial planners often estimate that people will need to be able to replace 70% to 80% of their pre-retirement working income when they do finally retire, yet the average retiree barely has enough to cover 50%. Unless you plan on cutting back substantially in retirement and hope to stay in perfect health into your golden years, you may need to save a lot more than you have been.
Remember to plan for factors like inflation and higher living expenses in the future. Plan for medical costs and similar expenses to increase as you get older. A good rule of thumb is to aim to make your retirement income equal to your pre-retirement income since housing expenses will hopefully decrease when you pay off your home but medical expenses may increase to take up the difference. If you are able to cover 100% of your current annual income in retirement, you may be prepared enough not to be forced back into a job unexpectedly.
How We are Saving
In order to hit that goal of having enough passive income to cover our pre-retirement spending, we save 30% or more for retirement right now in our 20’s. I rather have more than I need than not enough when my body starts deteriorating and I have fewer options. Between my 401(k), our two Roth IRA’s, our individual stock investments, and my husband’s pension, we are trying to cover our future selves as much as possible while still having a great life in the present. I don’t want to look back and regret not saving more, but I also don’t want to look back on experiences we passed up out of fear. As with everything in life, balance is probably the key to happiness.
How do you prepare for retirement? Are you also trying to save enough to be above the average retirement income of $29,000?