Morgan Stanley private wealth adviser Mary Deatherage joins Barron’s Roundtable to discuss what retirement savings options will help generate income in a low-income environment.
Even if you expect to live a fairly modest lifestyle in retirement, you will still need money to pay for it. In fact, Social Security will generally do a good job of replacing 40% of your previous income, more or less, if you are an average wage earner. But most seniors need 70% of their previous income or more to live comfortably.
RETIREMENT OPTIMISM HITS A 7 YEAR LOW, SURVEY SETS
Even if you are ready to cut corners as a senior and move to a part of the country where the cost of living is cheap, there is a good chance that you will still not succeed in getting on Social Security alone . These benefits today pay the average recipient about $ 18,000 a year, so even if you are willing to live in a small house and stay on local entertainment, you may find that $ 1,500 a month just does not cut it when you factor in essentials. expenses such as transportation, health care, and food.
It is for this reason that saving for independent retirement is crucial; you need some amount of extra money to supplement your Social Security income. However, 21% of Americans have not yet started saving for their seniors, according to a new survey by FinanceBuzz, and alarmingly, that includes nearly 16% of Gen Xers and more than 12% of baby boomers.
4 RETIREMENT PLANNING STRATEGIES TO LINE IN LIMITED TIMES
If you still need to start building your nest, you should know that the longer you wait, the harder it will be to grow wealth before retirement. On the other hand, if you make modest contributions to a savings plan today, you stand a better chance of accumulating enough of a balance sheet to avoid financial problems later in life.
Why it pays to start saving for retirement immediately
When it comes to growing retirement wealth, your biggest weapon is none other than time. The more years you have to invest your savings, the more money you stand to end up with. That’s why saving is a bad idea. Even if you are only able to spend $ 50 or $ 100 a month on your own, over time it will make a big difference.
Why this is the right age to take social security
In fact, let’s say you are 27 years old and think you will retire at 67, which is full retirement year for social security purposes. If you now start setting up $ 100 a month in an IRA or 401 (k) and continue to do so for 40 years, you will make approximately $ 240,000, assuming your invested savings yield an average annual return of 7% in deliver that time. That return is a few percentage points lower than what the stock market has averaged over time, and it’s a reasonable assumption for someone with a 40-year savings window.
Of course, if you are no longer in your 20s, you may need to do much better on the front of retirement savings than $ 100 a month. Say you are 42, with 25 years left until retirement. In that case, it will take a little over $ 300 a month in contributions to raise about $ 240,000 in savings, assuming the same 7% return. The point, however, is that the sooner you start financing an IRA than 401 (k), the less money you will have to contribute to building wealth, because once that money is in your retirement plan, you will be able to invest it. to work immediately.
Finally remember that there is nothing wrong with getting started really small at the front for retirement savings and work your way up as your income increases. If you can currently only swing $ 20 a month, go for it. You might be able to do much better in a few years from now, but that way you will at least roll the ball.
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