Offbeat Half of Americans don't have enough saved to cover basic retirement expenses

16:26  17 may  2018
16:26  17 may  2018 Source:

This is the nation's biggest retirement worry

  This is the nation's biggest retirement worry Americans are scared stiff about one retirement expense. Unfortunately, few take advantage of a great way to calm such concerns.Future medical expenses haunt the imaginations of millions of Americans. In fact, paying for health care costs during one’s golden years is Americans’ No. 1 retirement worry, according to Franklin Templeton Investments.

More than half of Americans (55 percent) don ’ t have enough saved to cover basic living expenses in retirement , says one study. Forty-five percent have nothing saved at all, according to another survey.

Pre-retirees 68% Saving for retirement . 59% Having enough money to maintain lifestyle throughout retirement . 53% Covering basic monthly expenses . –Across generations, more than half of Americans say they would use savings to cover a financial emergency (57%).

While it's not a pleasant thought, the fact is that most people are not on track to retire comfortably. In fact, half of Americans aren't even saving enough to be able to cover basic necessities during retirement, according to a recent Fidelity survey.

However, hope is not lost. Fidelity estimates that 22% of retirement savers could make do with their retirement savings if they made modest changes to their retirement lifestyle. For 28% of the respondents, though, it would take significant lifestyle changes to make their income cover their basic expenses during retirement.

Mature woman looking at a computer screen with a concerned expression © Getty Images Mature woman looking at a computer screen with a concerned expression

In other words, 50% of Americans will need to adjust their retirement lifestyles just to be able to live paycheck to paycheck during their golden years. That's not an ideal situation for anyone. Fortunately, if you adjust your savings plan early enough, you may be able to save enough money to get by in retirement without having to downsize your home and live on instant ramen noodles.

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But many Americans aren't doing this. Not only do they lack the amount needed to retire comfortably, but a majority of Americans don ' t even have enough savings to cover basic retirement expenses for a year.

Nearly 44 percent of American households don ’ t have enough savings to cover their basic expenses for three months in the event of a financial emergency like losing a job or “The good piece about this recession is that this issue isn’t just about 'those poor people,' it’s about half of us.”

For example, say you have 20 years until retirement and you currently have $5,000 saved. Assuming you're earning a 7% annual rate of return on your investments, if you contribute $100 per month, you'd have $70,389 after 20 years. Stash away an extra $50 per month, and you'd bump your total savings up to $95,909 in the same time frame. Thanks to the power of compound interest, small additions to your savings can grow exponentially, so even a few extra dollars a month can amount to thousands of dollars over a few decades.

Now, it's one thing to say you're going to start saving more money, but it's another to do it. Unless you get a raise or win the lottery, you'll need to cut back in some spending areas so you can put more money toward your retirement fund. There are a few ways to make your money go further without forgoing that summer vacation or your daily latte.

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"This is a persistent American problem of how you should handle your finances and spending," said Jill Cornfield, retirement analyst for Bankrate. Last year, only 37% of Americans reported having enough savings to cover an expense of 0 or more.

About 49% of Americans don ' t even have enough money saved to cover three months of expenses -- slightly worse than the 46% of Americans who Susan Carson and Laura DeLallo make 5,000 and have half a million in retirement savings, but their sprawling portfolios is proving hard to manage.

1. Pay down high-interest debt

High-interest debt (such as credit card debt) is one of the most toxic forms of debt out there. If you have a high balance, you may end up paying thousands of dollars in interest, and it can take years to pay off that debt completely. And all that money you're spending on interest could instead go toward your retirement fund.

The average U.S. household that has credit card debt has a balance of close to $16,000, according to NerdWallet's 2017 American Household Credit Card Debt Study. Considering the fact that the average credit card APR is around 16%, the interest payments on that much debt can add up quickly. In fact, if you're paying $500 per month toward $16,000 worth of debt while paying 16% interest, you'll end up forking over more than $5,015 in interest alone over three and a half years. And the longer it takes you to pay down that debt, the more you'll pay in interest over time.

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Thus, at least according to the BLS's data on average expenses in retirement , a million nest egg, supplemented by Social Security benefits, does indeed seem to be more than enough to cover the Only Half of Americans Have a Long-Term Financial Plan. Here's How to Get Started on Yours.

The findings weren’t encouraging: More than half of Americans still don ’ t have enough saved to cover common financial emergencies. – 55 percent of Americans can’t cover six months’ worth of living expenses if they lost their job.

While it may seem contradictory, it may actually be a good idea in some situations to tackle debt before you put money toward your retirement. If the interest rate on your debt is higher than the returns you're earning on your savings (which it almost certainly would be in the case of credit card debt), then you'll get a better return on your money by paying off the debt ASAP.

Say, for instance, you have an extra $1,000 at the end of each month that you can either invest or put toward paying down debt. Let's also say you currently have $10,000 in a retirement fund earning 7% annually, but you're carrying $15,000 in debt with a 16% APR.

If you split that $1,000 and put $500 per month toward your retirement and $500 toward debt, you'd have $105,681 saved in your retirement fund after 10 years. You'd also have paid off your debt in about three years, paying a total of roughly $4,300 in interest. If you then invested the full $1,000 per month in your retirement fund for the next seven years, you'd finish that decade with $123,803.

If, however, you put $1,000 per month toward debt, you'd pay off that debt in just a year and a half, paying only $1,800 in interest. Then, after that debt was paid off, if you contributed $1,000 per month to your retirement fund, you'd have around $144,919 saved after eight years. Between the extra retirement savings and the money you save on interest, you'd come out roughly $21,000 ahead by paying off your debt first and then investing all your spare cash for retirement. 

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According to Bankrate's latest financial security index survey , 34 percent of American households experienced a major unexpected expense over the past year. However, only 39 percent of survey respondents said they would be able to cover a ,000 setback using their savings.

Nearly one in two Americans anticipate an uncomfortable retirement . Don ’ t listen to them. People are pessimistic about their financial future, but when their later decades finally roll around, well, they’re not so bad, according to new findings from Gallup.

In other words, even if you hold off on saving for retirement for a couple years, you could end up with more in the long run by eliminating those high-interest payments on your debt.

2. Delay Social Security benefits by a few years

Of course, after you've been working the better part of your life, it makes sense to want to claim your benefits as early as possible. But by doing that, you could be leaving money on the table.

You can claim benefits as early as age 62, but when you claim before you reach your full retirement age (FRA), your benefits will be permanently cut by up to 30%. Wait until after you reach your FRA, though, and you'll receive a boost in benefits.

For example, say your FRA is 67, and your full benefit amount is $1,500 per month. If you claim benefits at 62, your checks will be cut by 30%, leaving you with $1,050 per month (or $12,600 per year). Delay benefits until age 70, though, and you'll receive a bonus of 24% -- bumping your total monthly check to $1,860 (or $22,320 per year). 

Theoretically, your benefits should balance out eventually -- meaning whether you claim early or delay benefits by a few years, you should "break even" if you live to your life expectancy. In this scenario, here's what your breakeven age would look like:

AgeTotal Benefits When Claiming at 62Total Benefits When Claiming at 70

Now, it may look like a better decision to claim benefits earlier rather than later, since it will take until age 91 in this case to "break even" if you claim at age 70. However, life expectancies are continuing to rise. One in four seniors turning 65 today can expect to make it past age 90, according to the Social Security Administration, and one in 10 lives past 95. Especially considering the fact that your personal retirement savings could run dry by the time you reach this age, it will be helpful to have all the extra cash coming in that you can.

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Once you're satisfied that you have a relatively firm grasp on what your retirement expenses will be, you can then plug that figure into the calculator instead of a replacement ratio to gauge whether you've got enough saved for retirement (and, if not, estimate how much you'll need).

Most Americans with 401(k) and other defined contribution plans are accumulating debt faster than they're saving for retirement . Many workers say they would like to put more money into their 401(k) plans but simply don ' t have enough left after paying everyday expenses to do it.

It's tough to plan for retirement, especially if you're on a tight budget. But even if your savings aren't quite where you want them to be, if you're strategic about it, you can make your money work harder for you.

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Think saving for retirement is unrealistic? Try retiring with no savings .
Without proper planning and preparation, retirement won’t be what you expect.Almost three-quarters of baby boomers expect to delay retirement, according to housing nonprofit organization The NHP Foundation survey of 1,000 non-retired Americans 50 and older. Why? They didn’t budget for unforeseen health-related expenses, and expected Social Security income to make up half of their monthly income. They also have unrealistic expectations about the retirement they hope to have, said Dick Burns, president and chief executive officer of the NHP Foundation. “We believe there is a rude awakening for those who haven’t reckoned realistically with the future,” Burns said.

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