The idea of retirement can evoke a range of mixed emotions, from excitement and joy to fear and anxiety. Sadly, many of these negative emotions stem from worries about money or health. More than half of respondents in a recent Gallup poll thought they would struggle financially in retirement.
The great news is that there is a huge gap between perception and reality. Millions of us nearing retirement worry about not having enough money. But research shows that the majority of Americans actually feel better off once they stop working.
Almost three in four retirees say they are doing well
This discrepancy between perception and reality is nothing new. Gallup has been analyzing people’s retirement prospects for more than 20 years, and it’s a consistent trend. In fact, the data shows that many of today’s retirees — who are doing well — thought they never would have, 20 years ago.
The latest data from Gallup shows:
Perception: 45% of non-retired Americans expect to have enough cash when they retire. Reality: 74% of retired Americans say they have enough money to live comfortably.
What’s behind this disconnect? It’s certainly not that people’s brokerage accounts or 401(k) investments are performing better than expected. Only 29% of retired Americans consider investment accounts their primary source of income. This is in sharp contrast to the expectations of 50% of non-retirees.
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Conversely, Social Security has proven to be much more valuable than people thought. While 58% of retired Americans say this is their primary source of income, only 35% of non-retirees expect to rely on that money in retirement. Finally, some retirees downsize, resulting in a lower cost of living than expected.
3 ways to ease anxiety after retirement
Many people don’t have a clear idea of how much money they will need in their golden years. If we can shed some light on your retirement plans, it will feel less scary.
1. Calculate your retirement needs
Because people’s lives vary so much, there is no one-size-fits-all retirement goal. However, there are several ways to find a rough number that fits your lifestyle. For example, financial planners suggest that you will need about 80% of your current income in retirement. You can play with this number depending on things like your current residence, travel expenses, and other expenses.
Let’s say you’re a married couple with a combined income of $150,000. At 80%, you would need $120,000 a year, or $10,000 a month. The next step is to identify your retirement income sources. For example, you can visit the Social Security website to see how much you’ll receive.
For example, you might receive $3,000 from Social Security, $2,000 from rental income, and another $1,000 from your pension or annuity. In that scenario, you would need to generate $4,000 per month from investments and savings.
Another financial rule of thumb comes into play called the 4% rule. Without going into too much detail, the nest egg should be large enough to cover a 4% withdrawal in the first year of retirement, and then adjusted annually for inflation. means. In this case, you would need $48,000 ($4,000 per month). That means you’ll need $1.2 million in retirement savings.
2. Use tax-advantaged retirement accounts
Tax breaks can be very helpful in achieving your retirement goals. If your workplace has a 401(k), find out how it works. Many employers match your contributions, reducing your tax bill and increasing your retirement savings. If that’s not possible, consider an IRA. A traditional IRA reduces your taxes now, but a Roth IRA allows you to withdraw tax-free when you’re older.
Some major brokerages also offer IRA matching. For example, Robinhood matches 1% of your IRA contributions. When you sign up for the premium Robinhood Gold service, you’ll receive low brokerage fees equal to 3% of your investment. Click here to learn more about how Robinhood can help you invest for retirement.
3. Invest some of your salary
It’s never too late to develop investing habits. If you have plenty of time and can invest even a small amount of your paycheck, you’re likely to be in a good position for retirement. For reference, the S&P 500 has historically produced an 8% annual return since 1928. You can use this as a rough benchmark for stock market performance, but keep in mind that past returns are no guarantee of future returns.
If you invest $200 every week, your portfolio could be worth almost $1.2 million after 30 years. Save just over $310,000 and let the magic of compound interest work on the rest. If you have less time, the calculation will change. You may need more investments to reach your retirement goals.
conclusion
There are a lot of dire and bleak headlines about preparing for retirement, but it’s great to know that many of us are in better shape than we feared. In the end, knowledge and action are the best antidotes to anxiety. If you’re worried about your retirement, sit down and think about what you need. Then you can plan how to get there.
