How Much Should I Save For Retirement?
The cost of retirement seems astronomically high. Today the average cost of retirement is estimated to be around $738,400. That’s much more than the average American worker makes in a year and it’s an amount that none of us is likely to see in our bank accounts at any one time.
If you’ve been saving for your retirement for you entire adult life to day, you might find this number shocking. You may be wondering: how can anyone save this amount of money while keeping up on mortgage payments, credit cards, and the cost of living? If this is what you’re thinking, then know that you’re not alone. In fact, more than a quarter of all American adults have put nothing towards retirement. If you’re in this group, start saving for retirement immediately!
Even if you already have a 401(k) that you’re working on, it’s totally natural to be disturbed by the cost of retirement. By the time that you retire — whether you retire at 65 or much later — you will probably have paid off your mortgage, student loan debt will be long gone for you, and you should’ve settled into a financially healthy lifestyle for your income bracket, so how is it that retirement can still cost so much? Where does all of your savings go when you retire? Let’s find out.
The cost of healthcare in retirement is easily one of the biggest money sinks for your savings. Right now you are at an age where your health isn’t too bad. Perhaps you go the doctor once a year or so for a checkup or you might have a prescription that costs about $12 a month, but as long as you don’t suffer a serious injury, your healthcare costs are minimal.
All of this will change after retirement. In 2016 it was estimated that medical bills in retirement would cost the average person around $260,000. That over a third of all of your retirement savings!
Keep in mind that your medical expenses — along with all retirement spending — will increase the longer you live. This is the reason why many experts are skeptical about the future of retirement.
Most American homeowners have paid off their mortgages before age 65. If this doesn’t sound like you, it may be time to consider whether or not you bought a house within your means. On the other hand, just because you feel confident that you’ll be finished with your mortgage by the time you retire doesn’t mean that it’s time to get comfy.
There are hidden costs to owning a home, some of which you will still have to keep up on in retirement. Additionally, you can’t expect to live in your home over the course of your whole retirement. If your needs change, you may move into a retirement or nursing home later in life. This would change your housing costs dramatically, as a retirement home can go for anywhere between $653 to $4,200 a month depending on your location and living situation.
Here’s the thing that nobody tells you about retirement: it can become incredibly boring! It’s strange to think of retirement as boring, since many of us find ourselves looking forward to it from our very first days in the workforce.
Retirement can seem boring because it involves such an enormous change in lifestyle. Many of us in the workforce fill our days with work and, whether we find it exciting or not, it provides us with something to do for 40 hours out of the week. When you don’t have work anymore, that’s 40 hours that you must fill with some sort of activity.
You may find that your old hobbies no longer cut it. After all, those were hobbies that cultivated with the expectation of spending no more than a few hours a night or a weekend enjoying. They weren’t meant to be a 24/7 activity for your enjoyment and they don’t have to be.
You can still keep up your old hobbies in retirement, but you will need to supplement them with something more to spend your days. The good news is that this doesn’t have to be office work — you can find something relaxing to do with all of your free time. The bad news is that most hobbies have at least some associated cost. Since you are now in a fixed income from your 401(k) and social security, that cost will have to come out of your retirement savings.
Unless you can afford the hit to your savings, try to stick to cheaper hobbies. There is a reason that games like curling and Bridge are popular among seniors: they are cheap and make for a fun way to pass the time.
Retirement can cost a lot of money, but all the associated expenses aren’t necessarily in vain. Medical costs will dominate your retirement spending as your body ages, but staying healthy is key to enjoying your retirement. Spend wisely on housing and recreation and you may find that your savings can go as far as you need it to.
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Nick Cesare is a writer from Boise, ID. In his free time he enjoys rock climbing and making avocado toast.
This post was updated August 2, 2017. It was originally published August 12, 2017.