Many approaching retirement face a shortfall in their savings compared to the recommended 70% to 85% of pre-retirement income. For instance, Bob and Betty, a hypothetical couple, demonstrate various retirement scenarios at ages 62, 65, and 70, combining Social Security and retirement savings withdrawals.
Bob and Betty’s retirement scenarios
- Retire at 62: Both start Social Security and withdrawals from savings.
- Part-time work until 65: Then full retirement.
- Full-time work until 65: Then full retirement.
- Part-time work until 70: Then full retirement.
- Full-time work until 70: Then full retirement.
Their estimated retirement incomes show significant increases with delayed retirement and are relatively similar between part-time and full-time work in their respective scenarios.
Analyzing retirement income as a percentage of pre-retirement pay
Bob and Betty’s replacement ratio (retirement income as a percentage of pre-retirement pay) doesn’t meet common retirement goals unless they retire at 70. This illustrates a common dilemma for today’s pre-retirees: needing to work longer or reduce spending in retirement.
Action steps to enhance your retirement outlook
To avoid a retirement shortfall, follow these steps:
- Estimate Social Security benefits: Use calculators on the Social Security website.
- Assess living expenses: Understand how they might change in retirement.
- Summarize retirement savings: Include IRAs, 401k accounts, and other investments.
Next, consider:
- Increasing your Social Security benefits.
- Exploring methods to generate regular retirement income from savings.
- Finding ways to work longer while enjoying life.
- Identifying areas to reduce retirement spending.
For those uncomfortable planning alone, working with a qualified retirement advisor is advisable.
Avoiding a retirement bummer: planning ahead
Learn from others’ experiences of running low on funds in later years. Thorough planning is essential for maintaining quality of life and financial security for decades. If you need assistance in creating a retirement plan that works for you, consider speaking with a Signet advisor. Our expertise can help you navigate these crucial steps, ensuring a more secure and enjoyable retirement.
Assumptions in Bob and Betty’s example
- Both earn $65,000 annually, totaling $130,000 household income.
- They’ve saved $500,000 for retirement, above the median for their age group.
- They have no traditional pension benefits.
- Savings grow at 3% per year after inflation.
- Part-time work means no further retirement savings contributions; full-time work includes a 15% contribution (including employer match).
- Annual withdrawals are based on the IRS required minimum distribution methodology.
Different assumptions may vary the outcomes, but the overall message remains consistent: planning and informed decisions are key to a successful retirement.