The Retirement Myth Big Financial Firms Want You to Believe

Finance experts have taken on the subject of retirement savings, and the outlook might be a lot more optimistic than you’d previously been led to believe.

Retirement Savings Myths

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Ever feel like you need to save a fortune to retire comfortably? Well, despite what you may have heard, the experts don’t agree.

Misleading Retirement Savings Figures

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According to Northwestern Mutual, the average American thinks they need $1.46 million to retire securely. But the reality is far less daunting.

Expert Opinion on Retirement Savings

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Andrew Biggs, a senior fellow at the American Enterprise Institute, says the sky-high figures pushed by investment firms and the media are pretty misleading. “You Don’t Need to Be a Millionaire to Retire,” Biggs stated in the Wall Street Journal.

Survey Results on Retirement Needs

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While Northwestern Mutual’s survey found that Americans think they’ll need $1.46 million to retire, this figure would spell bad news for many as the average U.S. adult has saved only $88,400 for retirement – according to USA Today.

The Reality of Savings

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Have you read advice from Fidelity telling you to save ten times your final salary for retirement? According to Biggs, that’s more about selling their products than about your actual needs.

Federal Reserve Data on Retirees

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Let’s look at some data from the Federal Reserve. They asked people aged 65 to 74 about their finances from 2019 to 2022. Only 3% said they were struggling, and 12% were “just getting by.”

Financial Status of Older Americans

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For retirees with more than $10,000 in savings, less than 1% said they were finding it hard to get by, and 93% reported they were doing OK or living comfortably.

Comfortable Living with Modest Savings

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A massive 86% of those with $50,000 to $99,999 in savings were doing just fine or even living comfortably. So much for needing millions.

Contradicting Media Claims

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Only 19% of retirees reported having less than $10,000, which goes against other media claims that nearly half of older Americans have no savings at all. And despite all that, even among those with less than $10,000 in savings, 52% said they were doing OK or living comfortably.

Actual Savings Needed for Retirement

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So, how much do you really need? According to the Fed, retirees who feel financially secure usually have between $50,000 and $249,000 saved. That’s a far cry from the $1.46 million figure that’s been recently doing the rounds.

Social Security

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Why are so many retirees feeling good with modest savings? Simply put – Social Security. An average couple retiring in 2022 gets about $46,000 a year from Social Security. That’s well above the poverty line and a big part of why retirees aren’t panicking.

Scare Tactics by Financial Planners

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Biggs explains that financial planners often scare you into thinking you need more money than you actually do.

Changing Household Spending in Retirement

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Economists Michael Hurd and Susanne Rohwedder found that household spending drops by about 40% from age 65 to 90. You’re not going broke – you’re just spending less, especially on yourself. Meanwhile, spending on gifts and donations actually goes up.

The Impact of Children’s Expenses on Savings

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Planners also forget how much of your pre-retirement earnings go to your kids. If you earn $83,000 a year with two kids, you’re spending over $26,000 on their needs (on average.)

Post-Retirement Expense Reduction

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When you retire that expense typically vanishes, and Social Security can cover around 60% of your own needs – meaning you need less savings than you might think.

Realistic Retirement Planning

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Retirement planning is important, especially as lifespans increase and Social Security faces challenges. But scaring people with unrealistic savings goals also isn’t helping.

Living Comfortably Without a Million Dollars

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Most retirees manage just fine with far less than a million dollars. By understanding the true costs and benefits – like Social Security and decreased spending – you can retire comfortably without hitting that seven-figure mark.

Enjoying a Secure Retirement

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You don’t need to be a millionaire to retire comfortably. Real data and expert insights show that with modest savings and a realistic view of expenses and Social Security benefits, you can enjoy a financially secure retirement.

“You Don’t Need To Be A Millionaire”

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So next time you hear about those crazy high savings targets, remember: you don’t need to be a millionaire to live your best retired life.

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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.