What Are Expectations About the Cost of Retirement in the U.S?

Many Americans underestimate the cost of retirement. Americans are aware of the fact that the cost of living has increased for everyone and wage growth has not kept with the pace of living expenses, however retiring in today’s environment is a different beast entirely. Consumers have fewer options than they used to with regards to saving and earning other sources of income so they are relatively limited with their options. It’s never too late to prepare for retirement but that doesn’t mean that everyone will reach their retirement goals.

What’s a Good Amount for a Minimum Retirement Savings?

There really is no set minimum for retirement savings, every consumer will have their own minimum and savings floor which they will have to maintain. Minimums will also vary significantly based on the part of the country that each retiree is looking to settle down in. A minimum savings for someone in Florida will likely be much different from someone in New York. Consumers with good passive income whether that be pensions, SSI, rental income, other forms of passive income, etc., will not necessarily need as high of savings as others however they will still need a savings in order to retire.

What Might Change the Minimum for Retirement Savings?

Everyone consumer has a different lifestyle and due to this many consumers have different variables that could change their expectations and retirement goals. These retirement expectations most commonly include inflationary pressures, changes in cost of living, changes in effective tax rates (income tax, property taxes, etc.). With regards to inflation, the U.S. hasn’t been at the FED’s 2% benchmark for quite a while so consumers should assume higher inflationary pressures to continue, unless there is a drastic change in the near term (deflation, etc.). All these factors play a key part in how much money you’ll need to have saved to live comfortably in retirement. However each consumer has expenses specific to them. For example if you live near the beach you might have flood or wind insurance that other consumers might not need to pay. These extra costs can greatly impact your retirement expectations.

How Should Retirees Estimate Living Expenses and Is There Anything They Can Do to Cut Costs?

Retirees should estimate living expenses as they would normally. You can greatly reduce the amount of savings you'll need to retire if you finished paying off their mortgage before retirement starts. If you have completely paid down your mortgage you’ll have freed up a good chunk of income, however consumers will still have to pay a good sum of money to maintain their homes and keep up with property taxes.

What About Health Care Costs?

Healthcare costs can be quite significant and an unexpected medical expense could drastically change whether a consumer could afford to stay in their home or not. Unfortunately, this is something that happens and is one of the reasons some consumers are eventually forced to leave their homes during their retirement years.

What Strategies Can Help?

There are a few strategies that can help you save without relying on charity from others or downsizing. One strategy involves staying invested in the market well into retirement and continuing to work past the minimum social security age (health permitting). Others include consumers tax diversification with regards to their portfolio and maintain both pre-tax and post-tax investment accounts. You can also look to postpone SSI and take gains on your investments at the beginning of your retirement.

What About Consumers Carrying Debt Before Retirement?

Carrying significant amounts of debt before retirement which hamper a consumer’s ability to invest and lose money on interest payments slowly eats away at their retirement potential. This is exactly what you don't want to happen and a common mistake many make.

Considering Downsizing

There are some scenarios where downsizing isn’t such a bad thing. If you are recently empty-nesters it might make sense for you to downsize either way. In this scenario you should look to downsize just because you might not need a big house anymore, especially if you are just two people (husband and wife).