Analyzing Your Retirement Needs

Experts generally agree that most of us retire on 70% to 80% of our final salary. One way to determine whether or not you would be able to live on this portion of your current income is to take the income cut now and put the difference into savings. This exercise could provide valuable insight and perhaps help motivate some people to re-evaluate their current financial planning.

Understand the retirement income gap more clearly. Generally, your retirement analysis needs will reveal your retirement income gap — the difference between the income you can realistically expect to receive from Social Security, a company-sponsored pension, and personal savings compared to the income you think you will need during retirement to maintain a specific lifestyle. Until age 30, most people may have negative income levels because they are in school and rely on others financially. In the middle years — ages 30 to 65 — earning power tends to increase significantly. In the retirement years, even though spending can be reduced, if the combined income from Social Security, a company-sponsored pension, and personal savings does not amount to enough, you could be faced with a retirement-income gap.

Consider the following. Almost 95% of all people will retire on Social Security benefits, a small pension, and no appreciable personal savings, according to the Social Security Administration. Also, the average current Social Security monthly benefit is $1,748 a month for a retired couple receiving average benefits. Recent statistics indicate that 40% of the work force is not participating in a pension plan, and only 25% of the work force has ownership (vesting) of pension benefits. And in some states, public school systems do not participate in Social Security. Considering this information and its possible impact on the future retirement income security of millions of people, financial advisors strongly recommend planning now for retirement. Think of it as a multi-step process that begins with identifying a retirement income gap.

Financial prospects for many people ages 51 to 61 are grim. A joint study released by the National Institute on Aging, the University of Michigan and the Alliance for Aging Research found that 405 of those surveyed have no retirement/pension income other than what they expect to receive from Social Security. Also, one in five households has no assets, one in seven persons has no health insurance, and 20% are disabled. The snapshot of reality provided by this study speaks volumes for the need of all workers to closely examine their personal situation and plan properly for an adequate retirement.

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Securities and investment advisory services are offered by VALIC Financial Advisors, Inc. member FINRA. SIPC and an SEC-registered investment advisor.

This information is general in nature and may be subject to change. Neither VALIC nor its financial advisors or other representatives give legal or tax advice. Applicable laws and regulations are complex and subject to change. Any tax statements in this material are not intended to suggest the avoidance of U.S. federal, state or local tax penalties. For legal or tax advice concerning your situation, consult your attorney or professional tax advisor.