What they have is far from what they say they will need: report
By Deborah Jeanne Sergeant
According to a recent story from CBS News “the gap between what people think they’ll need for old age and their actual savings is massive, even for those nearing retirement.”
CBS cited a Northwestern Mutual study that states most Americans think they will need $1.27 million to enjoy retirement. However, the average retirement account balance is less than $90,000. Many have only around $114,000 in savings in their 60s and 70s.
In addition to poor savings habits, floundering investments lately have endangered many people’s retirement plans. According to Yahoo Finance, “the average workplace retirement plan balance fell from $144,280 at the start of 2022 to $111,210 by year’s end.”
Social Security may not help as much as anticipated, and may not keep up with inflation. While the 2022 Social Security cost of living adjustment was 8.7%, in 2024, it may be as low as 3.1%. By contrast, the average rate of inflation has been 5.71% per year between 2020 and 2023.
“There is no magic money or big secrets about planning and savings for one’s retirement,” said Randy Zeigler, certified financial planner and private wealth adviser with Ameriprise in Oswego. “Consumption is the biggest competitor to accumulating the amount of funds needed to support a comfortable retirement.”
Without a cashflow worksheet, it’s impossible to know what money they’ll need for retirement and how they can categorize needs and wants.
“This is always one of my first steps in developing a coherent retirement plan,” Zeigler said. “Once the needs are determined then the income sources, like pensions and Social Security can be tallied, inflation can be added to the monthly expense needs and then the shortage or surplus can be calculated.”
He also looks at the expected longevity of clients because families with historic longevity should tailor their financial plans to meet their expenses longer. Zeigler also said that people should look at their retirement lifestyle plans.
“Most planning software assumes linear lifestyle expense needs over the entire retirement period, while my experience with many of my clients is that most people spend more money in their 60s and early 70s and then that need tends to level off or even decline in late 70s and into one’s 80s age range,” he said. “This leveling assumption can be included in one’s planning effort. Medical insurance and unreimbursed healthcare costs are two areas needing careful consideration in the cash flow accounting work.”
Investments should be diverse to ensure that the money will weather financial storms.
“Generally, a mix of guaranteed income and investments that move with markets make an investment portfolio less volatile and reassure that people will not outlive their money,” said David Mirabito, senior financial services executive at Mirabito Financial Group in Fulton. “And Social Security does at least offset some inflationary erosion.”
Living below one’s means is also a mantra of Michelle Shauger, regional vice president of Primerica Financial Services in Rome. Ideally, this should start early in one’s career, long before the last decade or so before retirement.
“Begin by saving the match in your employer plan and the difference of 10% of gross income into a Roth IRA,” she said. “Set a goal to max out a Roth IRA each year for tax-free growth. As you make more money, increase the percentage you save.”
She encourages clients to establish three accounts for savings: a short-term, high-yield savings for emergencies; a mid-term, high-yield and tax-free savings for things like purchasing real estate, traveling, helping others; and an emergency fund with three to six months’ worth of expenses in case of a job loss or health problem curtails the household income.
Shauger also cautions clients to never carry a credit card balance. If it’s paid off monthly, it accrues no interest. For those already in credit card debt, she advises, “start by saving one month of expenses in your short-term emergency fund. Then, get out of credit card debt. Then save three to six months’ expenses in your middle bucket.
“Make sure that you have a full analysis of your goals and what you should be saving each month in each account to accomplish your unique goals.”
