According to a study conducted by the Investment Company Institute, retired Americans are now spending more than what they use to pre-retirement. Retirement is considered as a time when individual spend less and live in limited means. Not anymore.
The report suggests that the spending after the retirement increased more than half of the taxpayers during the first three years post-retirement. This happened after claiming the social security. The lower income groups were the highest spenders with the middle-income group spending the same amount. The high-income earners were the least spenders. The data seems to suggest that with some smart retirements saving early in your career you can enjoy a relaxing retirement.
What made it possible?
Several factors resulted in more post-retirement spending. The amount of money the retirees were left with includes money from the salaries and wages, social security benefits, distributions from retirement accounts and pensions. The list of sources does not end there. The researchers found out that people kept on working for few more years after claiming the social security benefits.
There is a time limit for more spending
The retirees may be spending more money for first few years, but the rate of spending will come down eventually. If you are planning for 25 to 30 years of retirement life then you will need to spend carefully. The report followed individuals from 1999 to 2010 and found that the median taxpayer’s spendable income at three years after claiming Social Security was 103% of their income from one year before collection.
How to save for the retirement?
Even if you plan for the retirement, it’s no guarantee that you will follow the path. Your expenditure may go up or go down as the time passes. When you have an uncertain target for the future, it becomes tough to decide how you much you should save.
The experts, however, have a great suggestion. They suggest that people spend 70% of their pre-retirement income on retirement. Meaning you need to spend more in your retirement savings if you want to reap the benefits later on.
Another way of smart retirement savings is investing early in the schemes that will reap you more benefits like stocks and stock funds. Experts believe that investing in these schemes when you are years away from your retirement will provide you handsome return on your money.
Investing some of your money in the bonds is another great way to make a smart investment towards your retirement savings. The best way to approach this investment type is to consult a financial expert.
More Money is available for spending
Post-retirement the additional cost like commuting, and saving for other purposes are eliminated. This results in the availability of more money for activities like travelling and hobbies. The taxes benefits also help in saving more money. There are various saving accounts that offer tax-free returns.
Retirement Savings: How to do it right
The report paints a pretty picture for the retirees. However, to live that kind of life you first need to save smartly before you retire. The pension plan for the employees and Social Security benefits aren’t enough for a luxury retirement living.
Here are some of the ways you can save for your retirement and live your dream post-retirement life:
How much you need to save –
Assuming you have paid off your mortgages and debts, 70% of your annual pre-retirement income should be enough. You also need to eliminate any heavy medical expenses from the list.
In case you are planning to buy a house or car or any expensive things you may need 100% of your annual pre-retirement income or more. This may include your medical expenses.
Considering all the things you need to decide how much you need to save in order to live a comfortable life.
Sources of income
You need to have more than one source of retirement income. Basically, you can break down your retirement income source into three categories:
Social Security
Pensions and annuities
Your savings
Start estimating how much you will be receiving with each of the income sources. If you haven’t already applied for the social security benefits, now is the right time to do so.
Pool your extra payouts
Whether it’s the annual payout from your company’s pension or any other schemes make sure you add to the list of the retirement income sources. Add other sources as well from where you can get that extra money like from inheritance or investment you made.
Conclusion
In order to enjoy a very relaxing and luxurious retirement, you need to save a lot and make some smart investment early in your career. With so many options available today you can still live a life of fun with the income you have generated all these years.
Start your saving plans now
