Millions of retired seniors today collect monthly benefits from Social Security. But living on those benefits alone is far from ideal.
Social Security will replace about 40% of the average earner's pre-retirement wages. But most seniors need more like 70% to 80% of their former income to maintain a decent standard of living. And that means retirees need to bring savings of their own into the mix to avoid financial struggles.
But recent data from New York Life shows that near-retirees may be in trouble on the retirement savings front. And unfortunately, they don't have all that much time to catch up.
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Baby boomers don't have a lot of savings
The average retirement savings balance among baby boomers is $223,498.27, says New York Life. And while that's clearly a lot of money on the one hand, it's unfortunately not a lot of money in the grand scheme of what could be a 20- or 30-year retirement.
In fact, for years, financial experts encouraged retirees to withdraw from their savings at a rate of 4% a year. Now to be fair, many experts feel that at this point, the 4% rule is sorely outdated. But even so, at an annual withdrawal rate of 4%, a $223,498.27 nest egg will only result in about $8,940 of yearly income. That's not a lot of money even on top of income from Social Security.
And the worst part is that many baby boomers are right on the cusp of retirement and therefore don't have a ton of time to catch up in the savings department. However, all isn't lost there, either.
Boomers who delay their retirement can add to their savings, especially if they're able to max out an IRA or 401(k) plan and take advantage of catch-up contributions. Delaying retirement might also make it possible to delay Social Security and snag a higher monthly benefit in the process.
But from a savings perspective, boomers generally don't have a lot of opportunity to make up for lost time. And they may have to resign themselves to making lifestyle adjustments to account for their limited savings.
There's hope for younger generations
New York Life says that while baby boomers have an average of $223,498.27 saved, the average retirement plan balance among all generations is $135,161.50. And that's certainly not bad for people in their 30s or 40s.
But even if your current 401(k) or IRA balance is $0, if you're still fairly young, you have lots of opportunity to build up a giant nest egg ahead of retirement. Contributing $500 a month to a savings plan over 30 years will leave you with about $680,000 if your investments generate an average annual 8% return, which is a bit below the stock market's average. That's more than three times what the average baby boomer has today.
Retiring on Social Security alone is not a wise move, as it could lead to horrendous financial struggles for many years. That's why it's so important to save for retirement. And while some baby boomers may have unfortunately missed that boat to some degree, it's definitely not too late for younger workers to get ahead of the game.
