Don't approach retirement without having read up on it and taken some preparatory steps. If you leave your retirement to chance, you might end up blindsided by a development you didn't expect. For example, you might be surprised to learn that your income is insufficient for the kind of lifestyle you'd hoped for.
Here are three facts many don't sufficiently appreciate about retirement. Acting on at least one of them can boost your future income and financial security.
Image source: Getty Images.
Image source: Getty Images.
Fact No. 1: Relatively few people are prepared for retirement
First off, if you're feeling at least a little underprepared for retirement, suspecting that you haven't socked away enough money, know that you're not alone. According to the 2016 Retirement Confidence Survey of the Employee Benefit Research Institute, the vast majority of workers have not socked away much for retirement:
| Amount Saved |
Percentage of Workers Who've Saved This* |
|---|---|
|
Less than $1,000 |
26% |
|
$1,000-$9,999 |
16% |
|
$10,000-$24,999 |
12% |
|
$25,000-$49,999 |
10% |
|
$50,000-$99,999 |
10% |
|
$100,000-$249,999 |
12% |
|
$250,000 or more |
14% |
Source: 2016 Retirement Confidence Survey.
*Reflects savings and investments held by worker and spouse, not including value of primary home or pension assets.
There's more nuance to the situation than the table above suggests. The survey also asked whether workers had an IRA, a defined contribution plan account (such as a 401(k)), or a defined benefit plan such as a pension. Among workers with none of those, fully 67% had saved less than $1,000 -- compared with just 9% for those with one or more retirement accounts. When it comes to those with savings of at least $100,000, only 5% of those without retirement accounts fell into that group vs. 35% of those with accounts. Clearly, retirement accounts make a big difference.
Image source: Getty Images.
Fact No. 2: Retirement is not likely to play out as expected
Meanwhile, even if you are saving money for retirement, you may not have a realistic sense of what lies (or might) lie ahead. For example:
- Your retirement may last much longer than you expect. If you stop working at 62, for example, and live to 97, your nest egg will need to support you for 35 years.
- You may end up retiring earlier than planned. According to the 2016 Retirement Confidence Survey, 46% of retirees left the workforce earlier than planned, with 55% citing health problems or a disability as the reason, and 24% citing changes at work, such as a downsizing or workplace closure.
- The average monthly Social Security retirement benefit was recently about $1,360, or $16,320 for the year, and the maximum monthly benefit for those retiring at their full retirement age was recently $2,687, or about $32,000 annually. If you're assuming that you'll be able to live somewhat comfortably mainly on Social Security, think again.
- Healthcare can cost much more than you think it will, even if you think it will cost a lot. According to Fidelity Investments, a 65-year-old couple retiring today will spend, on average, a total of $260,000 out of pocket on healthcare. (That's an average, of course -- meaning you might spend less, or more.)
- You might even end up bored in retirement. A 2014 MassMutual survey found that 10% of retirees were surprised to find themselves lonely, bored, with a lost sense of purpose, and/or depressed in retirement. (There's good news, too: Fully 72% of respondents reported feeling quite happy or extremely happy in retirement.)
Those are just some of the ways in which retirement can surprise you. Fortunately, you can defend against many of the negative ones -- by building up a war chest before retiring and by planning to have activities and socializing in your later years. Working on staying healthy can pay off, too -- financially and in quality of life.
Image source: Getty Images.
Fact No. 3: You can boost your future income by acting now
Finally, know that you don't have to be extremely cash poor in retirement. There are some steps you can take to boost your future income.
For example, if you're still working, consider working a few more years than you originally planned and retiring a little later -- if you can. Every additional year you work is a year that you're not tapping your nest egg and a year in which you can aggressively pay down debt. (Ideally, you'll also be maintaining employer-sponsored health insurance, saving you additional dollars.) If you've saved $400,000 for retirement, for example, and you can let that grow for two more years at an average annual growth rate of 8%, you'll boost the total by more than $66,000.
Working longer can help you delay starting to collect Social Security, too, which can make your checks bigger. For every year beyond your full retirement age that you delay starting to collect benefits, they will grow by about 8%. Delay from age 67 to 70, and you'll boost your benefits by 24%.
It's not quite as powerful as it seems, though, because while your checks will be bigger, you'll be collecting a lot fewer of them. (There are some other Social Security-maximizing strategies to consider, too, especially if you're married.)
The good news, overall, is that you're very likely to enjoy your retirement. But you might enjoy it even more if you've prepared for it a little more, by beefing up your savings and making plans for how you'll spend your time.
