How much money do you need to retire comfortably?
Some experts say you need at least $500,000 in savings, while others suggest the number is closer to a million dollars. When it comes to saving for retirement, how are Americans doing? Not great, according to a 2020 TD Ameritrade report. Only 14 percent of people in their 60s have more than $500,000 saved. Worse, 20 percent of people in their 70s have less than $50,000 in the bank.
There are many people either nearing, or at retirement, who are not financially prepared for that phase of their lives. I spoke with several well qualified financial advisors to get their take on retirement planning, specifically for people who haven’t saved adequately for it.
Hunter Yarbrough, Executive Vice President and Financial Advisor with CapWealth, a Franklin based firm, said, “When I meet people who aren’t sufficiently prepared for retirement, they aren’t entirely surprised by the news, but, often, they don’t understand how income works in retirement. Income sources such as Social Security, IRAs, pensions, are not always well understood.”
Yarbrough says the amount someone needs in retirement is not simply about a specific number.
“How you invest to make sure you keep up with inflation matters," he said. "That said, however, if having a target number motivates people to save, I’m certainly in favor of that.”
John Cobb, Brentwood based financial advisor with LPL Financial, said, “Some people are angry, or shocked when they realize they haven’t saved enough. When I walk them through their situation, the thing I hear over and over again is ‘Why didn’t somebody tell me?’”
Jennifer Pagliara, also an Executive Vice President with CapWealth, has a slightly different take.
“People come in with a number in their heads. They thought they had enough. It can be a hard conversation when someone says, ‘I have a million dollars and I plan to spend $100,000 a year.’ Spending 10 percent of your savings is just too much. Five percent is much more likely to work in terms of being able to outlive your money,” she said.
Indeed, the amount of money you’ll need in retirement is dependent, at least in part, on the lifestyle you have in mind. Experts usually suggest keeping expenditures at 3 to 5 percent of your holdings, especially in the early years of your retirement.
But what can you do if you’re nearing retirement and haven’t saved enough? Yarbrough says, “It’s about understanding where you are. You’ll probably have to adjust lifestyle expectations, preferably by saving more during your remaining years at work and spending less.”
Pagliara added, “Realize what you’re spending. Even buying a cup of premium coffee every morning should be given consideration. Every penny counts.”
Cobb pointed out that when retirement funds are tight, “try to delay taking social security as long as possible. If you simply can’t wait until you’re seventy, perhaps you can hold off until you’re 68.”
Working longer is another option and many baby boomers plan to do that. In 2018, 29 percent of Boomers ages 65 to 72 were working or looking for work, according to Pew Research Center. However, continuing to work often depends on staying healthy and whether employers will be supportive.
“A lot of employers don’t want to pay the higher wages long time employees have achieved. It’s easier to hire younger people. They don’t have to pay them as much,” Pagliara said.
Of course, the type of work you do also matters. If you own your own business, or you are a professional engaged in a career related to medicine, accounting or law, for example, that may help. According to Catherine Collinson, CEO and President of Transamerica Institute, whatever type work you do, you must “keep job skills up to date and prepare for alternatives.”
Can substantial equity in your home save the day? It depends on whether you’re willing and able to downsize.
“You can downsize and use some of your equity to fund your retirement,” Pagliara said. “In some cases, retirees who are underfunded, don’t really have a choice. It can be expensive to maintain an older, larger home. Some simply don’t have the liquidity to handle it.”
All of the advisors said that the keys to overcoming a late start are clear.
“Learn something about your portfolio’s return on investment, and how it works. Are you earning, dividends? Recognize that interest earned from CDs and savings accounts don’t even keep up with inflation,” Cobb said.
“Your options are work longer, spend less and save more,” added Yarbrough. “If you’re only five years away from retirement, while it’s certainly worth doing, saving another $100,000 probably won’t make a significant difference in the long term. Retirement expectations will need to change somewhat.”
They also stressed the value of getting professional help.
“It’s worth talking to a professional who can guide you,” Pagliara said. “It can be a confusing time. There are good advisors who have spent their careers on this and they understand how to manage these type situations.”
It’s never too soon to start saving. Unfortunately, some folks wait until it’s too late.
Len Serafino is a published author, seasoned writer and an experienced writing teacher.