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How much does it cost to retire?

Exiting the workforce is a monumental occasion in life, much like buying a home, getting married or having children. Most of us wonder what it will be like; however, because we all come from different backgrounds and financial means, the cost of retiring can fluctuate greatly between individuals.

Conducted earlier this year by Gallup, a survey found slightly less than half of Americans – 46 percent – believe they likely won’t have the funds necessary to stop working once they reach retirement age. Fifty-one percent, meanwhile, expect to have the money necessary to keep up with the standard of living that they’re accustomed to, despite not working full-time.

American’s sentiments regarding retirement over the years

As with most polls, it has been found that retirement readiness has waxed and waned over the years. Tracing back to 2002, around 60 percent of Gallup respondents were confident about no longer working full time in their latter years, while still being able to live comfortably. But a decade later – which coincided with the aftermath of the economic recession – retirement security dwindled to only 38 percent.

Another retirement aspect to which Americans can’t seem to find a consensus is not just whether they’ll have the financial ability to enter this portion of their lives, but when is the best time to do it. For instance, in a separate Gallup poll that was also conducted earlier this year, the most common response among participants for when they expected to retire was at the age of 66. However, among millennials – those ranging between 18 and 29 years of age – the average response was 63. For 30- to 49-year-olds, they forecasted the widely considered first year of senior citizenship: sixty-five.

David Littel, co-director of the retirement income program at the American College of Financial Services, noted that far too many Americans call it quits from their careers without the proper plan in place to ensure that they’re not biting off more than they can chew. This is what’s taking place among baby boomers, the current retirement generation.

“Over the next 12 years, an estimated 10,000 Baby Boomers will reach the age 65 every day,” Littel explained. “More and more Americans are retiring but so few understand basic facts and strategies when it comes to ensuring that their retirement is a comfortable one.”

Word "budget" on notepad with pencil and calculator. Budgeting is an ideal way to plan for retirement.

Most people failed a retirement literacy questionnaire

Per a retirement income literacy quiz that the non-profit educational institution organized last year, of the approximately 1,250 people that participated in it, nearly 70 percent failed the examination, answering 60 percent or less of the questions correctly.

“The results of this survey are alarming and a stark reminder of the need to be prepared for the decades in retirement when you are not earning a steady stream of income,” Little added.

So, all that being said, what is the retirement income sweet spot? There’s no set-in-stone answer to this question. However, there are steps you can take to determine your retirement comfort zone, as recommended by The Motley Fool:

  • Add up all your planned-for expenses in a given year (e.g. Food, rent, taxes, insurance, entertainment, travel, etc.).
  • Take into account all your retirement income stream sources (e.g. Social Security, investments, 401(k)s, emergency savings, pension,  etc.).
  • Assess whether your costs will be more substantial in retirement compared to when you were working full time.
  • Consider that financial experts say the ideal is 80 percent, given that expenses are usually fewer.

Your retirement decision is a personal one – so your financial plan ought to be exclusive to you. Comprehensive financial planning is what we’re all about at Kentucky Bank. Let’s get you on the correct retirement track so you’re set up for success.

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