A new study from Merrill Lynch and Age Wave, part of a four-year, 50,000-respondent investigation into the changing landscape of retirement, reports that retirement has the highest average price tag when stacked up against life’s other biggest expenses.
The average cost of retirement is over $700,000. That’s about 2.5 times that of the average home. The average cost of a home is $278,300.
A recent article in Credit Union Times, “Retirement Is ‘Life’s Most Expensive Purchase,” notes that the financial support millennials receive from their parents can siphon off retirement funds.
Even with this staggering price tag, the Merrill Lynch and Age Wave report says 81% of Americans don’t know how much they’ll need for their retirement. What’s more, many younger people today think they’ll need to personally fund a greater portion of their retirement, relying less on their employers or the government. Millennials expect that 65% of their retirement income will come from personal sources. Longevity is increasing, and more individuals will be personally funding lengthier retirements. They will be far longer retirements than their parents or grandparents.
Some experts recommend that you look at retirement as purchasing something in your future, so it alters the dynamic of how you plan. In other words, you’re trying to accumulate the assets and the ability to purchase a fantastic future.
The study examines the reasons people aren’t saving more. The reasons most frequently mentioned in the study are not having enough money left after paying basic expenses (41%) and paying down debt (38%). The study also found there is a significant “intention-action gap” in how Americans are saving for retirement. It looks like Americans know they should save more, but they’re not doing it.
People have good intentions, but the study found that there’s a big difference between intentions and actions. Americans, on average, said they think they should save about 25% of their disposable income each year. However, they are saving just one-fourth of that. They’re saving 5.5% of their disposable personal income. The savings rate has inched up from a low of 3% during the recent recession. Nevertheless, it’s still less than half the peak rate of 13% in the early 1970s, the study says.