The survey polled 1,161 people ages 40 to 59 with incomes between $40,000 and $99,000. Of them, only 47% said that retirement was one of their top three priorities. Yikes.
While I don’t know about Bigfoot, I’m definitely in trouble when it comes to retirement. I didn’t make it a priority in my 30s the way I should have (and I was broke in my 20s).
Not only did I not have a SEP-IRA until last year, I wasn’t even maxing out my Roth IRA. Instead, I let other savings concerns take precedence: Tim’s teeth, new windows for the house, paying extra on the mortgage, etc. And I only just moved my Roth from a low-earning bank fund to one of Vanguard’s more targeted (and therefore more strategic) retirement fund.
As a consequence, I’m 40 years old and have roughly $40,000 saved in my two IRAs. Bad Abby, no retirement!
But seriously, I’m in the same boat as a lot of the respondents. I’m very skeptical about being able to have a comfortable retire. In fact, when I started this post,I wasn’t sure I’d be able to retire at all, let alone comfortably. (Though unlike 37% of the respondents I don’t think there’s any chance that disco could make a comeback, regardless of my retirement status.)
Can I retire at all?
The numbers say yes, but they assume more steady returns than I do.
After all, the numbers said yes to lots of people getting ready to retire around 2008, and those folks got a nasty surprise. Not to mention that the numbers assume full Social Security benefits and don’t always take inflation into account. And this of course is based on my job staying steady and my always being able to put at least $9,000 a year toward retirement.
But okay, let’s say I am able to retire. Whether it’s comfortable or not is the second part of the equation.
What’s your comfort zone?
It’s unclear here what the parameters are for a “comfortable retirement.” I suppose that’s because it must vary from person to person, but it’d have been nice if the study had at least thrown in a broad sketch.
Failing that, I guess I have to define it for myself.
“Comfortable” to me means being able to spend without worrying too much (except inasmuch as I’ll always worry about money). Ideally, it would also mean traveling at least a couple of times a year (without having to use travel rewards credit cards, though I probably would anyway). It also means being able to cover all those fun surprises that life throws your way. So I think I’d consider $50,000 a year “comfortable.”
Fewer expenses in our golden years
Or am I — and the respondents — looking at “comfortable” through the wrong lens? My brain (and probably theirs) is stuck in the present, which has factors like mortgages and higher taxes. Could this be increasing the amount we think we need in retirement?
The most obvious obsolete expense will be retirement savings. A lot of people are throwing thousands of dollars at their retirement accounts each year. So retiring will nix a huge item in the monthly budget.
Another decrease will be taxes. Even people who aren’t self-employed will see a drop in taxes (unless they have the exact same income in retirement). But those of us who are self-employed? Our tax rates are going to plummet.
Right now taxes eat up $2,147 a month of my gross income. (They’re one of the main reasons I can only kinda sorta live on half my income.) Once I’m no longer working, I can get rid of $730 a month in FICA taxes alone, and my income taxes will go down too. So let’s say that’s a minimum of $1,200 a month saved — probably more.
Of course, most people aren’t self-employed so the tax drop won’t be that precipitous, but most will save something. And of course the tax-savings disparity is made up for with mortgages.
I have a relatively low mortgage, so I’m only throwing $700 to $900 a month at the thing. Since property taxes and, therefore, insurance, will keep going up over time, I’ll probably only be saving $300 to $400 a month by the time I’m retired. Which — don’t get me wrong — is nothing to sniff at. But the average mortgage payment in 2015 was just under $1,500 — plus whatever additional principal they’re paying down — so the average mortgage holder is going to see a huge drop in expenses.
Or will they?
It turns out that a lot of expenses may actually follow people into retirement.
The number of retirees with a mortgage is going up. In 2011 (sorry, the most recent year I could find), 30% of homeowners over 65 still had mortgages. At 75 and older, 21.2% were still making house payments. That’s mind-boggling! And not the only problem.
About one-third of older Americans carry non-mortgage debt — about $4,800 in credit card debt alone for people 50 and up. The average total non-mortgage debt was just under $12,500.
So maybe current expenses actually are a good metric for how much money you’ll need in retirement.
But not me
Luckily, my retirement expenses will look different from my current ones.
Specifically, I think I can pay off the house by the time I’m 50, barring any drastic changes to my finances. And for now I have no non-mortgage debt. (Eventually, I’ll need a new car, but hopefully by then I’ll have saved enough to pay for most or all of it with my car fund.)
This means that my expenses will go way down in retirement. All in all, I’m looking at about $27,000 less in expenses/retirement savings each year. So that definitely lowers the amount I need to stay comfortable… I think.
A big question mark
The problem is that the divorce is still too recent to know how much I need to live on as a single person. I’m still figuring out how much I spend on food, entertainment, etc. And of course there’s the issue of accounting for all the wrinkles life throws your way.
My health care costs will likely go up as I get older. The house will need a new roof, not to mention all the other things that just generally go wrong with it — especially since it’ll be almost 90 years old by the time I’m 70. Frankly, I shudder to think about what fun surprises it has in store.
And of course, inflation is a thing.
So I’m going to stick with my assessment of “comfortable” being $50,000 a year. And hope it turns out that I can live happily on drastically less.
Bigfoot will have to wait (probably)
If I succeed in putting away $9,000 a year, the AARP calculator says that I could maintain $50,000 a year pretty easily. So on the surface, I can say that comfortable retirement is more likely to appear than a sasquatch.
That number assumes full Social Security benefits. From everything I’ve seen, my generation is being told to expect about 75% of whatever we’re being quoted. Also, I doubt that the calculator accounts for inflation. And it probably can’t adjust for a shift to a more conservative asset allocation as I near retirement, which will likely result in a lower rate of return.
That said, I also think I can live on less than $50,000 a year and still enjoy myself. (I just might have to travel hack if I’m interested in multiple vacations per year.) So I’m more confident now than when I started this post that it’s possible for me to have an at least nominally comfortable retirement.
But just in case I’ll be trying to sock away more than $9,000 a year.
What would “comfortable retirement” look like to you? Do you think it (or retirement at all) is possible for you?