Retirement seems a long way away for many of us. In fact, many people reading this may still be in school preparing for their first full time job. The average retirement age in the United States is 62. The average life expectancy in the United States is 79. Generally speaking, you will need enough saved to support yourself for around 17 years in retirement. This may not seem like a difficult task, but with the changes in technology and medicine, it is not absurd to think that we could live to well into our 80’s and 90’s. Having enough money saved to support yourself for over 30 years now seems like a daunting and scary task!
Many plan to travel and live a comfortable lifestyle once they retire. The truth is you must allocate your funds effectively for years in order to achieve this. You must plan for all the unwanted expenses, such as medical expenses, that will occur as you age. Many people forget that your expenses will increase during the later years of your life. You will be more likely to get ill, which could cause thousands of dollars in medical bills. You may need to live in an assisted living home towards the end of your life. The average stay in an assisted living home in slightly over two years! This can easily add up to over $100,000 as the average cost of assisted living per month, in Illinois, is $4,050. According to AARP, they project that the average 65 year old couple will occur $240,000 of medical expenses in retirement. If you do not think about what can go wrong right now, you are putting yourself at a major disadvantage.
The short answer to our main question is as SOON AS POSSIBLE. The earlier you fund your retirement and other savings accounts, the more your money will grow. As you can see, the earlier you put your money away, the more you will see the beauty of compound interest. Investing in retirement at a young age will give you a huge advantage, which you will realize later in life. If you start saving for your retirement regularly in your early 20’s, you will be able to accumulate a solid foundation for the future. Saving a few hundred dollars a month and putting it in a retirement account may seem unnecessary to a 20 year old, but you will thank yourself when you begin to think about retirement. It is never too late to save for retirement; someone in their 30’s or 40’s could retire in their 60’s if they fund it efficiently and effectively. One thing is for certain, they will need to increase their average contribution compared to someone in their 20’s, as they will not be able to fully take advantage of compound interest.
To conclude, in order to plan for retirement you must start saving early and often. You will also need to think about unwanted or possible future expenses such as assisted living. Keep in mind the quality of lifestyle you want when you retire. Do you want to buy a new home and travel the world? Or are you content downsizing and living a simpler lifestyle? Hopefully after reading this you are more aware of how to save for retirement and why it is so important.
Written by: Kevin Kawarski, Financial Wellness Peer Educator, University of Illinois Extension, Spring 2018
Reviewed by Kathy Sweedler, Consumer Economics Educator, University of Illinois Extension.