Large segments of the American population are heading for a retirement disaster. No, I’m not referring to the viability of Social Security, I’m referring to the “Gap”. What is the Gap? The gap is the amount of savings/investments you will need in addition to Social Security and pensions to meet your retirement needs for the strong possibility that you will live to be over 90 years old.
Money Magazine published a 2016 survey on retirement and the results are SHOCKING.
56% of Americans Have Less Than $10,000 Saved for Retirement
Two-thirds of women (63%) say they have no savings or less than $10,000 in retirement savings, compared with just over half (52%) of men
74% of Americans age 60 and over have less than $260,500 saved
Let’s take a quick look at the 60 year old person in the above chart. Let’s assume this is a married couple, joint income of $60,000/yr. The assumption is that they will be able to live on 80% of their pre-retirement income. At age 67 they will be able to collect a total of about $30,000 in Social Security and retire.
Retirement Planning at age 67:
Social Security: $30,000
Assume Savings/Investing $265,000
Emergency fund needed @ 6 months of expenses: $24,000
Available Retirement Funds: $241,000 (after Emergency Funds)
Annual income needed at 80%: $48,000
4% annual withdrawal from savings ($241,000 * 4%): $9,640
Needed Income: $48,000
Actual Income: $39.640 (SS + 4% of Savings)
GAP: $8,360/year —– SHORTFALL or $250,800 over 30 years!
PLUS keep in mind that according to the above chart 74% of Americans are behind the Retirement Benchmark, which itself leads to a shortfall.
What can you do? Know Your GAP!
There are many online tools to help you discover your GAP. I can tell you from some research I’ve done, Fidelity Investments has an excellent Retirement Planning tools, https://www.fidelity.com/calculators-tools/overview
Here is an example of a Fidelity Retirement Plan Analysis. In this case there is NO GAP, and a surplus at the end of plan that might be passed on to loved ones.
In an upcoming post I’ll provide some suggestions for how to fill the GAP.