Saving enough to retire comfortably can be incredibly challenging. About 65% of Americans save less than $ 100,000 for retirement, according to a report by the Employee Benefit Research Institute. And more than a quarter of the group deposited less than $ 1,000.
If your retirement savings become too little, it can be difficult to catch up. But how much do you actually need to retire? If you reach the retirement age with $ 100,000 in the bank, how far will the money go?
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Stretch every dollar in retirement
Everyone’s financial needs will differ, and therefore the dependence on your lifestyle will depend on how much $ 100,000 you will reach. Some retirees may spend as much in a year, while others may make it last longer.
A general rule to consider when planning for retirement is the 4% rule. According to this guideline, you can withdraw 4% of your total savings during the first year of retirement and then adjust each withdrawal to offset inflation. If you stick to this rule, your savings should last about 30 years.
The 4% rule is not perfect, but it is a good measure to get an idea of approximately how much your savings can take up each year. According to the 4% rule, you can only retire $ 4,000 a year if you retire with $ 100,000 savings.
It is almost impossible for someone to survive on $ 4,000 a year, but the majority of pensioners will also be entitled to social security benefits. According to the Social Security Administration, the average beneficiary receives about $ 1,543 a month, or about $ 18,500 a year.
Unless you have access to a pension or other source of income at the time of your retirement, you may just need to survive on your savings and social security. In this case, it amounts to about $ 22,500 per year in retirement income.
What if it’s not enough?
Although some retirees can pay the bills at $ 22,500 a year, many people will need significantly more to live comfortably. Fortunately, there are a few things you can do to increase your retirement income.
One option is to keep out the claim of social security benefits. The longer you wait until you claim (until the age of 70), the more you receive each month. You can increase your benefits by up to 32% if you wait until the age of 70 to claim, which can amount to hundreds of dollars more per month.
If you still have some time before you retire, you can decide to get a second job and save your money. You could also consider moving to a more affordable city or downsizing to a smaller home to save money. It can still be challenging to live on $ 22,500 a year no matter where you live, but reducing your expenses as much as possible can help your money go further.
Finally, you can choose to invest in dividend stocks to increase your retirement income. Dividend shares are investments that pay back a percentage of the share price each year or quarter. For example, if a share costs $ 100 per share and pays an annual dividend of 5%, you will receive $ 5 per year in dividend payments. It does not sound like much, but if you own hundreds of shares, the payments can pick up.
Of course, it is still important to invest wisely and not throw all your money behind one or two individual stocks. But if dividend stocks are part of a well-diversified portfolio, it can help increase your retirement income.
It is not easy to prepare for retirement, especially if you are left behind on your savings. No matter where you are financially, there are steps you can take to enjoy a more comfortable retirement.