The American Retirement Disaster – Do You Know Your “GAP”?

Retirement Disaster 2

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

Savings

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

Results:

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.

Analysis Plan

In an upcoming post I’ll provide some suggestions for how to fill the GAP.

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