The typical 65-year-old has only enough savings to cover 9.7 years of retirement income, according to a new study by the World Economic Forum. volatility of stocks is far from the only major issue facing elderly Americans.
According to Pamela, the top challenges Americans face in preparing for retirement are:
- Insufficient savings: The typical household nearing retirement has an average of only $135,000 in their combined savings – enough to provide at most $600 of income per month.
- Extreme health care costs in retirement, even for healthy couples. A healthy 65-year-old couple retiring now will spend an inflation-adjusted $551,000 on out-of-pocket medical costs not covered by Medicare.
- Taxes: “You’ll owe the IRS 25-50 percent of your savings when you take income from a tax-deferred account, such as a 401(k), IRA, 403(b), Most people look at their retirement plan balances and think it’s all theirs. They tend to forget they’ll owe the IRS taxes on every penny they’ve put in and every penny of growth.”
- Social Security benefits have lost 1/3 of their buying power since 2000, as many of the things retirees typically purchase have increased several times faster than Social Security cost-of-living adjustments.
- Inadequate investment returns: The typical investor in equity mutual funds has earned only 3.88 percent annually for the past 20 years, beating inflation by a meager 1.7 percent per year. Asset allocation and other types of investors actually lost ground over the last two decades.
- Exhausting savings: People who follow the once-recommended “4 percent rule,” which said retirees could take 4 percent out of their retirement accounts each year have a 50 percent probability of running out of money over 30 years.
“The current recommended annual withdrawal rate is just 2.8 percent,” Pamela says. “If you have a $500,000 nest-egg, that would give you just $1,166 per month. If you have $200,000 saved, you could withdraw $467 per month. And with $1 million saved, that’s $2,333 a month. When you hit retirement, what kind of lifestyle do you think that will provide you?”
To beat these pitfalls, Pamela shares a proven method more than half a million Americans are using to build savings without the risk and volatility of stocks and other investments.
About the Author:
Pamela Yellen is founder of Bank On Yourself, a financial investigator, and the author of two New York Times best-selling books, including her latest, “The Bank On Yourself Revolution: Fire Your Banker, Bypass Wall Street, and Take Control of Your Own Financial Future.” Pamela investigated more than 450 financial strategies seeking an alternative to the risk and volatility of stocks and other investments, which led her to a time-tested, predictable method of growing wealth now used by more than 500,000 Americans.
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