Money Here's the average cost of retirement: How prepared are you?

11:36  13 february  2018
11:36  13 february  2018 Source:   The Motley Fool

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How much money needed for retirement will be different for different people, but here ' s a look at an average figure, and what it means for you . The same report, which noted, " retirement is the most expensive purchase most people make," found that the average cost of retirement is 8,400.

According to an Age Wave/Merrill Lynch report, 81% of Americans report not knowing how much money they'll need for retirement . That' s more than a little problematic, because if you don't know how much you 'll need, you can't know if you 've been saving enough.

According to an Age Wave/Merrill Lynch report, 81% of Americans report not knowing how much money they'll need for retirement. That's more than a little problematic, because if you don't know how much you'll need, you can't know if you've been saving enough.

How much money needed for retirement will be different for different people, but here's a look at an average figure, and what it means for you.

The magic number is $738,400

The same report, which noted, "retirement is the most expensive purchase most people make," found that the average cost of retirement is $738,400. Here it is compared with some other average costs:

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How much money needed for retirement will be different for different people, but here ' s a look at an average figure, and what it means for you . The same report , which noted, " retirement is the most expensive purchase most people make," found that the average cost of retirement is 8,400.

Shouldn't you prepare for it? Wendy Connick. The latest Merrill Lynch Finances in Retirement Survey, released in March 2017, revealed that the average cost of retirement has risen to 8,400. If you 're not sure how to come up with a realistic retirement budget, start by plugging in

Expense

Average Cost

A college education

$83,400

Raising a child to age 18

$245,300

A home

$278,300

Retirement

$738,400

Again, remember that these are just averages, and that each item could cost more or less -- and probably will. If you use the rough 4% rule guide, you'll get about $30,000 in income from a $738,400 nest egg in your first year of retirement, and can adjust further withdrawals for inflation. Add that to what you expect from Social Security and any other income sources, and see if $738,400 makes sense for you. (The average annual Social Security benefit is nearly $17,000.)

Alarming findings

The report cites some other troubling numbers related to retirement, such as:

  • While the mean percent of income that people think they should be saving for retirement is a whopping 25.3%, the percentage of income that they actually are socking away is a measly 5.5%.

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    How much money needed for retirement will be different for different people, but here ' s a look at an average figure, and what it means for you . The same report, which noted, " retirement is the most expensive purchase most people make," found that the average cost of retirement is 8,400.

  • Only 15% of pre-retirees have tried to estimate how much money they might need for healthcare and long-term care in retirement.

  • While life expectancy at birth in America has gone from the mid 60s in 1950 to nearly 80 years old today, the average retirement age has fallen during that period from around 70 to 63.

The disparity in savings is very worrisome, because for most people, socking away only 5.5% of their income isn't going to help fund a very comfortable retirement. That is especially true if one doesn't start saving for retirement while still very young. Young savers enjoy the tailwinds of time, giving their money the opportunity to grow. Those who start saving later in life need to save a lot more.

Ignoring healthcare costs is another major blunder because healthcare is expensive. A 65-year-old couple retiring today will spend, on average, a total of $275,000 out of pocket on healthcare, according to Fidelity Investments. Medicare can be a great help in retirement, but it won't wipe out all out-of-pocket expenses.

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Your retirement is likely to be your biggest expense in life, so take it seriously and plan for it. Leaving much of it up to chance is risky and ill-advised.

So how do you get started? By asking yourself a few important questions and making a few small changes now, you will be able to prepare for the future and retire on your own time. Read more: This mistake costs the average family ,000 in retirement .

Meanwhile, if people are living longer and retiring earlier, that means they're ending up with significantly longer retirements. With retirements typically starting around age 63 and life expectancy near 85 years old for those who have made it to 65 years old, a very common retirement duration is about 22 years. In 1950, retirement was commonly less than 10 years! A long retirement may sound ideal, but it also means you'll need to have enough income to last a long time.

What to do

So if you're among those who don't know how much money they need for retirement or who don't think they will have enough money, what should you do? Fortunately, you're probably not doomed. There are many ways to generate more income in retirement, such as delaying retiring for a few years, working in retirement, and perhaps getting a reverse mortgage.

It's also quite effective to save more aggressively, no matter how old you are now, and to invest that money effectively. Long-term money that you won't need for five years (or 10 years, to be more conservative) is likely to grow the most quickly in stocks. A low-fee index fund such as one based on the S&P 500 is an easy way to be instantly invested in the stock market. Here's how much you might accumulate over various periods:

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In states with a higher cost of living, such as the New England area, the average retirement age is The more prepared you are , the better off you 'll be if unemployment forces you into retirement Want to Retire Early? Here ' s What It Means for Your Social Security. How Much to Save For

Having said that, here ' s where the Average American stands, and what you This will tell you how much income you 'll need in retirement . Next, subtract your estimated Social Security income, which The bottom line is that it's better to over- prepare than under- prepare when it comes to retirement .

Growing at 8% for

$5,000 invested annually

$10,000 invested annually

$15,000 invested annually

5 years

$31,680

$63,359

$95,039

10 years

$78,227

$156,455

$234,682

15 years

$146,621

$293,243

$439,864

20 years

$247,115

$494,229

$741,344

25 years

$394,772

$789,544

$1.2 million

30 years

$611,729

$1.2 million

$1.8 million

The Age Wave/Merrill Lynch report offered several examples of "course corrections" people can make that will leave them with far more money in retirement. Some corrections include not spending thousands of dollars helping to support grown children each year, quitting the costly and damaging habit of smoking, and relocating to a region with a lower cost of living and less costly homes.

Take some time to figure out how much you'll need for retirement, and how you'll get there. Find out how much you can expect from Social Security (the recent monthly average benefit was $1,404), too. With a little research and brainstorming, you can probably identify a handful of course corrections that can put you on the path to a better future.

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