I keep seeing articles in various magazines about boomers who are woefully unprepared for retirement. The articles seem to suggest that these boomers are planning to retire on Social Security benefits alone. Really? Are they not planning to live in a house or drive a car?
With national annual expenditures today exceeding $50,000 for the typical 65-year-old retiree, and Social Security generating only $16,000 in retirement income on average, many boomers will need to rely on their savings to close this $34,000 “income gap.”
You would need a retirement fund of $588,000 at age 65 to generate an after-tax income stream of $34,000 per year for 20 years (assuming you live to age 85 and earn an average annual return of 6%.) However, 40% of boomers have no savings for retirement, and even among those with retirement savings, more than two-thirds have less than $250,000 saved.
The Insured Retirement Institute (IRI) has put together four pieces of advice to help boomers close the income gap.
Don’t retire until 70
Delaying retirement until age 70 can yield significant financial benefits for retirees. Those who wait until 70 to begin collecting Social Security can receive 32% more in monthly benefits than if they started collecting at 66.
Increase retirement savings contributions
Individuals 50 years and older are allowed to contribute an additional $6,000 annually to workplace retirement plans. If it is made between the ages of 50 and 70, that annual $6,000 “catch-up” contribution may increase retirement savings by $227,000 – assuming a 6% pretax investment return.
Move to an area with lower expenses
With the cost of living index at one and a half times the national average, Santa Rosa may not be the best place to retire on a fixed income. Instead, research shows that retirees may want to head south and east to a city with a low cost of living. Cities with the lowest indexes include Harlingen, Texas, where it costs about 84% of the national average to live, or Pryor Creek, Oklahoma, and McAllen, Texas, which come in at 84% and 85%, respectively.
Medical expenses add up for retirees. Keeping healthy can cut annual medical expenses by reducing the risk of developing heart disease, diabetes or other costly illnesses.
Don’t these fabulous four pieces of sage advice sound wonderful? No, I didn’t think so. The numbers you read in the national press are very low for those of us wanting to be happy and secure in Sonoma County. However, they do serve as a great warning bell for those who have procrastinated in either saving or planning.
Do you hear the bell ringing? – Montgomery Taylor, CPA, CFP