What big challenges could a retired couple face in 2020? Based on the research I’ve conducted, the average age of the American retiree is 62. According to the Social Security Administration, 34% of Americans begin to claim their social security benefits at age 62. That doesn’t mean it’s the optimal age to claim it. It even lowers the amount of money you’ll receive monthly. So how should you plan for retirement so that early withdrawals aren’t necessary?
In this episode of Retirement Made Easy, I share a retirement story based on a hypothetical couple. If you’re planning for retirement, this is a retirement story you NEED to hear. Why? It will change the trajectory of your future. If you want to live a comfortable and sustainable lifestyle in retirement, you need to plan properly. Listen to this episode to learn what retirement planning should look like!
You will want to hear this episode if you are interested in…
- [1:36] The retirement story everyone needs to hear
- [4:25] Planning for your retirement years
- [5:06] Joint life expectancy for our retirees
- [7:26] The average couple with average healthcare
- [8:33] Key takeaways we can learn from the past
- [16:05] What interest rates looked like in 1990
- [16:51] What can we take away from our couple?
Statistics about our hypothetical retirees
To better understand our hypothetical couple, here’s some information about them:
- Our couple was born in 1958 and are turning 62 this year.
- The couple’s names are Michael and Mary (the most common names in 1958)
- Neither of them are smokers (but did you know 14% of US adults are smokers?)
- Michael and Mary are the “average” couple with “average” healthcare
The life expectancy of the average 62-year-old
When you plan for something as important as retirement, you need to know how long it’s going to last. You need to know how long a vacation will be to pack properly, right? It’s the same for retirement. We don’t know what our expiration date will be, but we have to use the information available to us. So what does the information tell us?
On average, women outlive men by five years. Statistically speaking, Mary is projected to live another 30 years (until the age of 92). If I was talking to Michael and Mary and told them their joint life expectancy was 30 years, they’d be shocked. It means their retirement income needs to last 30 years.
Do you think it’s a safe bet to assume that people will continue to live longer in the future because of medical breakthroughs on the horizon? There’s a good chance people will continue to live longer. Have you had access to top-quality healthcare? If you’ve been lucky enough to access above-average healthcare, you may be able to expect to live even longer than 30+ years.
If history is our guide, what are the key takeaways?
What can we learn from the past 30 years to gauge the next 30 years? 30 years ago, it was 1990. In 1990:
- A postage stamp was $0.25 (Today, a stamp costs $0.55)
- The national minimum wage was $3.80 (Today, the national minimum wage is $7.25)
- A Big Mac from McDonald’s was $2.20 (In 2020, the average cost is $5.67)
- A base model Ford Mustang was $9,500 (Today, the base model is $26,395)
- Medicare benefits started at $28.60 a month (Medicare part B starts at $144.60 for the lowest income bracket in 2020) That’s a 5.6% annual increase over the last 30 years.
All of these have gone up dramatically. If you retired 30 years ago and had a fixed pension of $2,000 per month you’ve watched everything increase—except your pension. Do you see the big problem? The cost of living went up about 3% a year. In 2020, it takes $2.44 to buy what $1 bought 30 years ago. Things change a lot in 30 years. Social security does increase—but not nearly enough.
The big retirement story takeaway
What can we take away from this? Michael and Mary can expect prices to double—if not triple—during their 30-year retirement. Their goal is to live a comfortable retirement with a lifestyle sustaining income. Can their income keep up with their cost of living?
What about you? Does this retirement story hit home for you? Are you prepared for a 30+ year retirement? I’d love to have a conversation with you about preparing for your retirement. Don’t hesitate to reach out!