Your New Retirement Number: $58,000

En español | Financial experts seem to speculate endlessly about boomers’ projected lifestyle in retirement based on their savings and spending patterns. Now a new survey that polled recent retirees about their standard of living has found that, for some, you don’t need a lot of money each year to retire comfortably and live happily.

According to the survey by Baltimore-based investment firm T. Rowe Price, recent retirees report living on 66 percent of their pre-retirement income on average – $58,000 annually – and say they’re very satisfied.Retirement piggy banks

Half of the 1,507 people surveyed say they’re living as well or better than when they were working. Most say they’re better off financially than their parents were at that age.

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“The key finding is that retirees are making their retirements work,” says Anne Coveney, a senior manager at T. Rowe Price. “What’s impressive is that they’ve adjusted their spending and their satisfaction is quite high.”

The retirees surveyed had a 401(k) or IRA and a median household savings, including any home equity, of $473,000.

Retirees typically have fewer expenses than people in other age groups. They no longer pay for work-related costs, for example. And by the time they’re retired, their children – and the expenses that go along with them – are gone.

According to a J.P. Morgan Asset Management study in March, consumer spending peaks at age 45 and then declines in all areas except health care. The study also found that retirees don’t seem to need as much income to be content. After spending hit $40,000 annually, their satisfaction in retirement increased only incrementally.

So can boomers retire with less than financial experts recommend? Generally, advisers say retirees need at least 75 percent of their annual pre-retirement income to maintain their standard of living and reduce the risk of outliving their savings.  In other words, if you earned $100,000 a year, you’d need about $2.25 million to last 30 years.

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Dave Richmond, president of Richmond Brothers, a wealth management company in Jackson, Mich., says it’s easier than you may think to live on a smaller percentage of replacement income.

“If you’re still living with a mortgage and you have [consumer] debt, you’re going to need a higher percentage of your pre-retirement income,” he said. “But if you made $100,000, you no longer need to save the maximum $23,000 in a 401(k). That’s a 23 percent savings. And now you’re in a lower tax bracket from 25 percent to 15 percent. That’s another 10 percent savings. So now you’re saving 33 percent [of pre-retirement income] right there. Now you’re down to 66-67 percent.”

Living on less is not what Sacha Millstone, a senior vice president of investments at Raymond James & Associates in Boulder, Colo., says her newly retired clients want. They plan to spend about as much as they did when they were working.

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“I have been practicing for 30 years and I do a lot of work preparing people for retirement and managing their accounts after they retire,” she said. “I can tell you my clients are spending much more than 66 percent of their pre-retirement income and much more than $58,000 annually. They want to do things they couldn’t do when they were working. The first years of retirement they tend to make more trips … and they spend more.”

The survey also reaffirmed how important Social Security is to a retiree’s lifestyle. The government benefit was by far the most important source of income for retirees, accounting for 43 percent of what they brought in, the survey found. Pensions made up 19 percent. Funds from retirement plans, personal savings and investments accounted for 18 percent of their income.

 

Photo: Hatman12/iStock.com

 

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3 comments
SweetLBW
SweetLBW 5pts

All the articles I read regarding "Living In Retirement", whether from AARP or other sources refer to seniors having earned a minimum of $100,000 annually before retirement.  What advice is there for women over 65 that are divorced for many years, raised 3 kids without help from a deadbeat dad, and while working as a single mom for over 37 years never having earned over $50,000 in her lifetime.  Where is the opportunity for funds to be accumulated towards her retirement, particularly any retirement that would include "sailing full time, RVing, traveling, (have you seen all the cruising ads, etc., in AARP for example?)". 


The reality of the lifestyle that someone CAN lead during the retirement years does depend on what life hands you prior to retirement time. Maybe you or you family had health issues, maybe your marriage had divorce or death in it without monetary support, maybe you had low or moderate earning jobs which had no 401k with or without catch-up contributions attached to it.  After all this could you really save or invest almost anything at all?  Oh, and, even though you have no intention to not keep on working, and no matter that there is supposedly age-discrimination laws, what happens when you are let go from a job at 67, because "there is no more room available in the Firm during our merger".  If you have a job, and might be able to hold on to it, good for you because nobody after that hires you. All prospective employers want you to have a minimum of 30 years of experience, education and skills, particularly all types of computer/social networking etc., still be without a "wrinkle or gray hair",  all while having lived only 25 years on this earth.  Do you still wonder why so many of us "retirees" are stuck working a job in K-Mart or others of its kind?  



2Papa
2Papa 5pts

Me and the wife make way less than that and are happy.  It's just a state of mind.

JJamesx
JJamesx 5pts

How much you need for retirement will depend on the lifestyle you plan to lead. The best way to retire on your terms is to start planning and saving/investing early in life, do it with every paycheck and take advantage of any opportunity to increase your nest egg (employer matching plans, catch up contributions when you reach 50,etc.). I just read several great guest posts on the site Retirement And Good Living by recent retirees and what they are doing during their retirement. Some are working part time, starting businesses based on hobbies, sailing full time, RVing, volunteering with the Peace Corps, retired overseas and more. It give you a good perspective of the possibilities.