There are certain milestones that people expect by certain ages. By 16, you hope to hit the road with your shiny new drivers license.
The first election year after turning 18, you can’t wait to head to the polls. For 21-year-olds, a champagne toast is in order. Eventually, everyone stops worrying about age-related milestones—we’re all on our own paths after all.
But then comes 65, the year many expect to retire. Easier said than done, right? Career, life, and family choices can all affect the age workers retire by.
Before diving into how someone can prepare for a financially comfortable retirement, let’s look at what the average retirement age in the USA really is.
What is the Average Age of Retirement in the US?
Overall, the average retirement age in the U.S. is 64.
65 years old may be the age most of us think of as the best age to retire, but not all regions of America are hitting this goal. According to the U.S. Census Bureau’s American Community Survey the average age of retirement in:
• Hawaii, Massachusetts, and South Dakota is 66.
• Washington, D.C., is 67.
• Residents of Alaska and West Virginia is age 61.
A lower cost of living may be what’s helping West Virginia residents retire so young. West Virginia was one of the top 10 most affordable states in the country in 2019, according to U.S. News & World Report .
Recommended: Cost of Living Index by State (2022)
While those previously mentioned states give a look at two ends of the average retirement age spectrum in the United States, many states have an average retirement age that falls closer to what one might expect.
Colorado, Connecticut, Iowa, Kansas, Maryland, Minnesota, Nebraska, New Hampshire, New Jersey, North Dakota, Rhode Island, Texas, Utah, Vermont, and Virginia all have an average retirement age of 65.
The average retirement age will likely continue to change over time. According to a 2018 Gallup poll, when Americans were asked when they planned to retire, the most common retirement age was 66. In the future, we could see that number climb higher.
Expectations vs. Reality
The Employee Benefit Research Institute’s Retirement Confidence Survey Summary Report, the expected average age of retirement in 2019 was 65. Howvever, as noted previously, the Census places the average retirement age in the US is 64. Retiring earlier than planned could lead to not having enough money to retire comfortably.
How to Know When to Retire
Not everyone retires early by choice. More than four in 10 people retired earlier than they expected, mostly because of health problems, disabilities, or changes within their organizations.
It can be difficult for workers to exactly predict at what age they will retire due to circumstances that may be out of their control.
In order to bridge any financial gap caused by not having enough retirement savings, 51% of pre-retirees expect they will earn an income during their retirement by working either full time or part time.
While the survey found that respondents are aware of what they need their retirement savings to look like, there is a gap between their expectations and their actions.
Seventy-nine percent of pre-retirees reported that they agree they should be doing more to prepare for their retirement. However, only 48% reported having a strong retirement plan in place, with 19% of Gen Xers and 31% of millennials admitting to not saving for retirement at all.
A lack of awareness seems to be leading to a lack of preparedness: 25% of pre-retirees surveyed said they aren’t sure how much money they are currently saving for retirement.
It’s Never Too Early to Start Saving for Retirement
Retirement can last 30 years or more. As lovely as that sounds, financial security is key to enjoying a relaxing retirement.
To retire comfortably, the IRS recommends individuals have up to 80% of their current annual income saved for each year of retirement. With the average Social Security monthly payment being $1,177, retirees may need to do a decent amount of saving to cover the rest of their future expenses.
Any day is a good day to start saving, but saving for retirement while a person is young could help put them on the path toward a more secure retirement and might allow them to take advantage of compounding interest.
Compounding interest can take small investments and grow them into larger ones with the earned interest. That is to say, the money in a savings account, individual stocks, or mutual funds will earn interest, then that interest goes on to earn more interest. As savings grows, interest grows with it.
The Department of Labor (DOL) estimates that for every 10 years a person waits to begin saving for retirement, they will have to save three times as much every month to play catch up.
3 Steps to Start Preparing for Retirement
It’s not enough to have an idea of the best time to retire. To really reach that goal, it’s important to have a financial plan in place. These steps break down how to prepare for retirement.
Step 1: Estimate how much money you’ll need
One of the first steps a person could take toward their retirement saving journey is to estimate how much money they need to save. There is a retirement savings formula that can help you estimate: Start with your current income, subtract your estimated Social Security benefits, and divide by 0.04. That’s the target number of retirement savings per year you’ll need.
Step 2: Set up retirement saving goals
It might be worth considering what retirement savings options are available, whether that is an employer-sponsored 401(k), an IRA, or a simple savings account. Contributing regularly is key, even if big contributions can’t be made to retirement savings right now.
Making small additions to savings can add up, especially if extra money from finishing car payments, getting a holiday bonus, or earning a raise can be diverted to a retirement savings account.
If an employer offers a 401(k) match, it might be beneficial to take advantage of that feature and contribute as much as the employer is willing to match.
Along with receiving free money from an employer, there are also tax benefits of contributing to a 401(k). Contributions to a 401(k) happen pre-tax—that lowers taxable income, which means paying less in income taxes on each paycheck.
In addition, 401(k) contributions aren’t taxed when deposited, but they are taxed upon withdrawal. Withdrawing money early, before age 59½, also adds a 10% penalty.
Step 3: Open a Retirement Account
If access to an employer-sponsored 401(k) plan isn’t available—, or even if it is—, investors might want to consider putting money into an IRA. For investors who need a little help sticking to a retirement savings plan, they could consider setting up an automatic monthly deposit from a checking or savings account into an IRA.
retirement savings account that is made beyond the regular contribution maximum. Catch-up contributions can be made on either a pre-tax or after-tax basis.
As retirement gets closer, future retirees can plan their savings around their estimated Social Security payments. The official Retirement Estimator tool provided by the U.S. Social Security office could help by basing the estimate on an individual’s actual Social Security earnings record.
While this estimate is not a guarantee, it might give a retiree— or anyone planning when to retire—an idea of how much they might consider saving to supplement these earnings.
Social Security benefits can begin at age 62, which is considered the Social Security retirement age minimum. However, full benefits won’t be earned until full retirement age, which is 65 to 67 years old, depending on birth year.
Investing money on your own could help with retirement savings as well. SoFi Invest® offers an Active Investing platform, where investors can buy stocks, ETFs or fractional shares. For a limited time, opening an account gives you the opportunity to win up to $1,000 in the stock of your choice. All you have to do is sign up, play the claw game, and find out how much you won.
Get started with retirement saving and investing with SoFi Invest.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Claw Promotion: For the full terms and conditions of SoFi’s Claw Promotion, click here. Probability of a customer receiving $1,000 is 0.028%.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
SOIN20092
Source: sofi.com