One of the big questions when it comes to saving for retirement is, how much income do you need in retirement?
It’s a given that the total sum you’re going to need to save is likely huge, since you could easily end up living 20-30 years or more after retirement. And it’s almost certain that your costs are going to increase, as costs for healthcare in particular will increase substantially.
But those are just general principles that you’re going to have to take into account. Many nearing retirement want to hear specific numbers, if not because they hope to achieve those numbers, then because they want at least a ballpark number they can shoot for.
Here too, a specific number will be dependent on what type of lifestyle you intend to lead in retirement. If you carry mortgages and car payments into retirement, you’ll need more saved up. If you plan to do a lot of travel and eating out, you’ll need more saved up. But if you’ve paid off your house and plan to live modestly, you could probably survive with a little less. So how much money will you need in order to retire comfortably?
What They Say You Need
According to a recent study, the average American needs to save at least $386,000 for retirement. That means saving an average of $8,775 a year for someone earning the national average salary of $46,800. Is that realistic?
It’s important to remember that that $46,800 is gross pay. After taxes and healthcare contributions, that worker could be bringing in more like $34,000 a year. Average rent for a one-bedroom apartment is around $1,000 a month, so that leaves $22,000. Then there are internet and utility bills, food, gas, etc. that have to be purchased.
Let’s estimate $150 a month in utility bills, $50 in gas, and $300 in food per month. Now we’re at $16,000 left over. So you would have to save over 50% of the money you have left over after paying those expenses. That doesn’t even factor in the cost of clothing, car insurance, car repairs, and various other miscellaneous expenses. So is that really realistic for the average person to achieve?
Of course, younger workers aren’t even making an average of $46,800, they’re making far less, and will likely earn less in the future than older age cohorts did. Then you have couples, who will presumably need double the money to retire ($772,000). And if those retiring couples have children who still live at home, or who are still in college, they’ll need even more money.
What You Really Need
In order to live comfortably in retirement, you need to know how much money you’re spending right now. In the example of the average worker who spends at least $18,000 a year, 20 years of retirement would mean $360,000 is needed, plus any adjustment for inflation. Assuming a 2% inflation rate, we come up with $437,000 that’s actually needed. And if you assume a 5% increase in the amount of money you need, to account for rising medical costs, etc., then you’d need to have $595,000 saved up.
Many retirement writers assume even larger figures, such as calculating that the average retired household needs at least $40,000 a year in income. With the above inflation assumptions, you’re looking at needing anywhere from $972,000 to $1.32 million saved up.
Obviously, the amount of money you’re going to need in order to retire comfortably will be significant. And if you’re one of the fortunate few blessed with genes that allow you to live well into old age, your monetary needs could be even larger.
That means that in order to retire, you’re going to need to have assets that grow considerably during your working career but that also maintain their value into your retirement. Over the past couple of decades, there has been one asset that has stood out from the pack with respect to meeting those requirements: gold.
How Gold Has Beaten Stocks
It’s drilled into our heads from an early age that investing in stocks is the only way to put your money to work, but lately that just hasn’t been true. Many people like to play up the fact that stocks have averaged 7% gains over the long run, but that’s over a longer time horizon than most investors have to work with.
Since the gold window was closed in 1971, gold has averaged a 7.9% annualized gain, versus 7.1% for the S&P 500 and 7.0% for the Dow Jones Industrial Average. And over the past 20 years, gold has really shined, with annualized gains of over 10%, versus 4% for the S&P and 4.2% for the Dow.
The 21st century has thus far been characterized by lackluster stock performance and crisis after crisis. With the US economy on the verge of yet another contractionary economic crisis, many investors are wishing that they had had the foresight 20 years ago to invest in gold rather than stick to the stocks that everyone was pushing.
With the outlook for the US economy over the next few years looking increasingly bleak, and with the likelihood of another “recovery” along the lines of the post-2008 recovery that was a recovery in name only, the future of stock prices doesn’t look particularly strong. Gold, on the other hand, has a great chance to break through its all-time high prices over the next year, as more and more investors see the benefits of investing in the yellow metal.
Investors today have even more choices when it comes to investing in gold than ever before, including investing in a gold IRA. With a gold IRA, investors can roll over existing retirement assets from a 401(k), 403(b), TSP, or similar retirement account into a tax-advantaged retirement account that invests in physical gold coins or bars. That offers investors the ability to enjoy all the same tax advantages as a normal IRA, all while enjoying the protection that gold offers.
If you’re looking to protect your retirement assets, and thinking about how best to grow your retirement nest egg so that you have as much saved up before retirement as possible, isn’t it time that you took a look at investing in gold?
Trevor Gerszt is America's Gold IRA Expert, CEO of Goldco Precious Metals, and holds a position on the Los Angeles board of the Better Business Bureau.
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