Saving enough to retire comfortably can present great challenges. A report by the Employee Benefit Research Institute shows that approximately 65% of Americans save less than $100,000 for retirement savings. In this group, more than a quarter own socks for less than $1,000.
If your retirement savings are insufficient, it may be difficult to catch up. But how much do you actually need to retire? If your retirement age is $100,000 in the bank, how far can that money go?
Everyone’s financial needs will be different, so the $100,000 income will largely depend on your lifestyle. Some retirees may spend that much money in a year, while other retirees may spend longer.
The general rule of thumb to consider when planning for retirement is the 4% rule. According to this guideline, you can withdraw 4% of your total savings in the first year of retirement, and then adjust each withdrawal after that to account for inflation. Stick to this rule and your savings will last for approximately 30 years.
The 4% rule is not perfect, but it is a good benchmark to get a rough idea of how much savings can be withdrawn each year. According to the 4% rule, if you retire with a savings of $100,000, you can only withdraw approximately $4,000 in retirement funds each year.
Almost everyone cannot survive on $4,000 per year, but most retirees will also be entitled to social security benefits. According to the Social Security Administration, on average, each beneficiary can receive approximately US$1,543 per month, or approximately US$18,500 per year.
Unless you have a pension or other source of retirement income, you may be able to survive on savings and social security alone. In this case, the annual retirement income is approximately US$22,500.
What if that is not enough?
Although some retirees can pay $22,500 a year in bills, many will need more money to live a comfortable life. Fortunately, there are steps you can take to increase your retirement income.
One option is to postpone applying for social security payments. The longer you wait (until the age of 70), the more you will receive each month. When you wait until you are 70 to file a claim, you can increase your benefits by up to 32%, which can add hundreds of dollars a month.
If there is still some time before retirement, you can choose a second job and use the money for savings. You can also consider moving to a cheaper city, or downsizing to reduce the size of the house to save money. No matter where you are, the annual cost of living is still US$22,500, which is still a challenge, but reducing expenses as much as possible can help you earn more.
Finally, you can choose to invest in dividend stocks to increase your retirement income. Dividend stocks are investments that pay shareholders a portion of the stock price every year or quarter. For example, if the price of the stock is $100 per share and pays a 5% annual dividend, then you will receive a dividend payment of $5 per year. This doesn’t sound like much, but if you own hundreds of shares, then these payments can add up.
Of course, it is still important to invest wisely rather than invest all your money in one or two separate stocks. However, when dividend stocks become part of a diversified investment portfolio, they can help you increase your retirement income.
Preparing for retirement is not easy, especially if your savings are falling behind. However, no matter where you are, there are some steps you can take to enjoy a more comfortable retirement.