Is retirement in the USA an illusion?

Do you know how much money you need to have saved in order to retire? Recently Charles Schwab has published a study where they explain to us; what is the average amount of money a family in the United States needs to have saved. In their retirement plans to have an independent retirement, without taking into account the Social Security retirement benefit.

Traditionally people think that someone who is already a millionaire and has a million dollars; You already automatically have your retirement insured and although it is true that each case is different because it will depend on many personal factors.

According to Schwab, the amount that you need to have on average in your retirement accounts is $1.7 million dollars.

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Do you think it is a lot or a little for retirement?

This study shows us that for every 10 people consulted, almost 9 feel very safe; or almost sure of being able to have a good retirement and only 1 person says that they do not feel that they are going to achieve it.

So if you are currently looking at your investment account or your retirement plan; And, you don’t think you can reach that amount, it’s good that you start taking care of it as soon as possible.

According to information from Social Security, the average monthly check received by retirees in 2022 was $1,825; which means that if we compare this amount with the average monthly income in Florida for 2022 of about $4,640; less than half of the money you currently earn will come from the Social Security benefit.

So all the other part will have to come from your retirement accounts 401K, IRA, as well as investment accounts; in itself this study indicates that the 401K account is going to be your primary source of income in retirement.

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So the first conclusion that we can see from these numbers is that people in general; feel very confident about achieving their goal of having an independent retirement; which is confirmed by the results of the study carried out by Fidelity called “2022 State of Retirement Planning” which tells us that:

“79% of Americans feel confident that they are in a good position to retire the way they want to”

If at this moment you are beginning to feel that you live on another planet; and that you are rather worried about being able to retire the way you want, let me tell you that you are not alone.

As a Financial Planner, my daily job is to help our clients achieve that dream retirement; and really our work is not easy at all. Because when we see most people are really behind in the amount of money they should have for their desired retirement.

This comment that I make is confirmed by a study carried out by Vanguard called “How America Saves”; where it shows us that the average balance of the accounts of people between 55 and 64 years of age is $256,244; which is very far from that $1.7 million dollars. If you think that this balance goes up significantly when you are already retired; the average amount for those over 65 is $279,997, still a long way off.

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Which means that a large part of those more than 67 million retirees is really living off the Social Security check; to be more precise, according to the National Institute on Retirement Security, it points out that:

40% of retirees in the USA have the Social Security check as their only source of withdrawal; which represents more than 26 million retirees.

In the same way, this study tells us that only 7% of retirees are fortunate enough to receive income from the 3 ideal sources; from Social Security, from the pension of the company where they worked and from their 401K retirement plans or IRAs (Individual Retirement Accounts) or from their taxable investment accounts.

Now, if you think that this is something that is only happening to people with less income and although it is true that everyone’s needs are different according to a CNBC report, “35% of millionaires say it will be a miracle if they can be withdrawn.”

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So we might think that there is a clear difference between the expectations of how the majority think they are going to retire and the reality of many, but unfortunately the financial world is a mathematical world where if you do not have the necessary amount of money, a Ada Godmother to save you.

Main factors that prevent you from having the dream retirement

• Inflation: remembering that we are experiencing the strongest increase in the prices of products and services in the country in the last 40 years, which makes the retirement goal increasingly distant.
• Not having the ability to save: according to a CNBC report, for every 10 Americans, 6 indicate that they live from paycheck to paycheck, not having the possibility of saving.
• High interest rates: The principles of economics tell us that the way to stop inflation is to stop printing money without support and raise interest rates, which seems to continue to happen. But this causes credit card debts to become at present the worst enemy of your finances, being like quicksand where if you enter it is very difficult to leave.
• Ignorance in matters of personal finance: this article was written in the month of April, being this the month of Financial Education or Financial Literacy Month, and although it is true we must admit that social networks have helped people to know more On personal finance issues, it is also very true that much of the content that appears on the social networks of these so-called Finfluencers is not quality content and rather the ones that have the most likes are those that offer magic formulas to become a millionaire overnight in the morning and as everyone knows they are really totally false schemes.

So is retirement in the United States an Illusion? The answer is very simple; it is a fantasy for those who have not realized that situations have become more complex; but also the Schwab and Fidelity reports show us that a very important group of Americans is living their dream retirement.

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The recipe is simple, but it takes a lot of work:

• Reduce your spending, if it seems complex to do so, wait until you are retired and without income.
• Take the opportunity to invest in a diversified way over time and remember that when the markets go down they are opportunities that are presented to you for the future.
• All studies show that making a written Financial Plan to guide you on the path to your financial goals will help you determine how much to save, seek help from a CERTIFIED FINANCIAL PLANNER.

Lastly, remember that there are financial planners that charge by the hour and they are not going to ask you to have millions of dollars to work with you, because they are only going to charge you by the hour, so that is no longer an excuse.

The best advice we can give you is to start early, remembering that the best time to invest for your retirement was yesterday and the second best time is today.

Alonso Rodríguez Segarra

Founder & CEO Advise Financial

advise-financial.com

Alonso is a “CERTIFIED FINANCIAL PLANNER™” who is dedicated to increasing the Financial Well-being of nurses, physicians and successful immigrants in Florida and Texas. With more than 20 years of experience in the world of finance, always working for the best interest of his clients, under fiduciary criteria.