What Is Retirement?
Retirement refers to the period of life when one chooses to permanently leave the workforce behind. The traditional retirement age is 65 in the United States and most other developed countries--most of which have some kind of national pension or benefits system in place, to supplement retirees' incomes. In the U.S., for example, the Social Security Administration (SSA) has been offering retirees monthly Social Security income benefits since 1935.
Retire with More Money
A retirement survey conducted by the U.S. Census Bureau found the following apropos statistics:
- The average American retires at age 62
- 20.7% of the population will be 65 years or older by the 2050
- The average length of retirement is 18 years
- Nearly half of all retirees leave the workforce earlier than planned, often involuntarily
- 41% of retirees leave the workforce due to health problems or disabilities
- 14% of retirees leave the workforce in order to provide care for spouses or other family members
People are living longer than ever. Consequently, many don't have adequate retirement savings needed to sustain themselves throughout their remaining years. According to the Economic Policy Institute, the mean retirement savings of all working-age families is $95,776. However, the median amount, which factors in the nearly 50% of Americans who have no retirement savings, is just $5,000. Not surprisingly, many Americans work beyond the traditional retirement age, purely due to economic need.
Retirement Savings Tips
When it comes to saving for retirement, a disciplined plan of socking away even a small portion of savings each month, can easily add up over time. Many brokerages offer no-minimum, no-fee retirement accounts, that let individuals make automatic monthly deposits of $25 or $50. Furthermore, most employers offer 401(k) programs, that automatically invest a portion of a worker's paycheck, then match all or part of those contributions.
Projecting Retirement Saving needs
To project their needed retirement nest eggs, individuals should consider the following:
- Their likely retirement ages
- The income needed to maintain one's standard of living, based on annual expenses and target retirement age
- The current market value of one's current savings and investments
- A realistic projection of the real rate of return on one's investments
- An estimated value of one's employer pension plan
- The estimated value of one's Social Security benefits
- Retiring to another state
When making retirement calculations, individuals should assume that an annual inflation rate of 4% will erode the value of their investments, and they should adjust their savings plans accordingly. But generally speaking, the earlier one launches the retirement saving process, the greater success they will enjoy. Other keys to success include:
- Shrewd asset allocation, based on risk tolerance and investment time horizons
- Diversification, as a downside risk method, to protect portfolios during shaky economies
- Setting up automatic payments from checking accounts to your retirement savings account, to eliminate the possibility of inadvertently skipping a monthly deposit
- Committing to making the maximum salary deferral contribution to employer-sponsored retirement plans
- Working aggressively towards pay down existing debts
Finally, it's never too late to start saving for retirement. Those late to the game may need to work a little harder to catch up, but it can be done by cutting down on household spending, in order to channel more funds towards retirement savings accounts. Skipping the occasional dinner out can save hundreds of dollars, annually. Homeowners should likewise consider renting out their basements, to slash living expenses. (For related reading, see "Interest-Only Retirement: Can it be Done?")