The result: 60% of Americans, according to the Employee Benefit Research Institute http://www.ebri.org/pdf/surveys/rcs/2012/PR962_13Mar12_RCS.pdf, have less than $25,000 put away for retirement (not counting defined benefit plans and the equity (or none) in your home.
Is that scary, or what? If you’re brave, stay with me here, and let’s look at some even more frightening numbers:
Now, according to the U.S. Centers for Disease Control and Prevention—as of 2009—the average mortality rate for folks who live in the United States is 78.5 years (76 for men and 80.9 for women). That means that your measly $25,000 and your $24,000 annual Social Security payment will, actuarially speaking, need to last you for 12 years.
Let’s just play with some simple math and pretend that you won’t add to that $25,000 in savings, and let’s also assume that you won’t receive a pension. That means that you will have $24,000 + an additional $2,083 (your original $25,000 divided by 12 years of retirement—excluding any interest you may receive on the $25,000), or $26,083 per year to live on for the remainder of your life.
55 years old; let’s round your time to retirement to 12 years to make the math easier:
If you save $500 per month from now until retirement, in 2024, at average stock market returns of 10.56% (averaged since 1871), you will have approximately $243,000 in 12 years.
If you can only save $200 per month, you will have socked away approximately $153,000 in that same time period. That’s not a huge amount of money, but it sure beats the heck out of $25,000, doesn’t it?
Now, let’s see what happens if you are younger and start saving NOW:
Saving at a rate of $500 per month, with 32 years to retire (at 67 years old, according to Social Security), all things being equal, you can potentially accumulate $2.6 million!
Savings just $200 per month will reduce that number to $1.6 million.
And that’s if you just earn the average stock market returns. But it is possible to beat those. And I’m going to share some ideas to help you do just that. Tune in next week.
Need I say more? Start saving now!