The question of when to exit the working force has only become more complex over time. In addition to the COVID-19 pandemic draining the pockets of hopeful retirees, the resulting economic downturn and inflation have also made retirement seem unattainable to many Americans. For financial advisors with senior clients, it’s easy (and understandable) to share this concern; helping clients retire in 2022 is far more complex than punching a few numbers into a retirement calculator. However, it is still very possible to set up hopeful retirees for a comfortable retirement—if you know all the options out there and have a measurable idea of what “comfortable” looks like on paper.
How Much Monthly Income Does the Average Retiree Have?
First, let’s look at some statistics to establish a baseline for what a solid retirement looks like:
- Average monthly retirement income in 2021 for retirees 65 and older was about $4,000 a month, or $48,000 a year; this is a slight decrease from 2020, when it was about $49,000. In general, monthly income ranges somewhere between $2,000 and $6,000 a month.
- The average pension amount per month is a little under $1,000, or $10,788 a year, according to Annuity. Certain types of pensions, such as those through the government or military, tend to be slightly higher.
- According to the U.S Census, the average retirement income for married couples was around $100,000 a year in 2020; the median income was notably lower—about $73,000.
- SoFi reported that Americans between ages 55 and 64 spend about $56,000 a year; this amount dips down at age 65, then dips again at age 75.
- As a general rule, retirees should make about 80% of their pre-retirement income to maintain the same lifestyle after they stop working.
While these are helpful starting points, keep in mind these averages are affected by high-end outliers, and that every hopeful retiree will want something different out of their retirement. Some people may want to keep their lifestyle the same, but others may want more—or even less—in their future. With that in mind, let’s look further into what that number can actually look like, and more importantly, where it’s going to come from.
What Is a Reasonable Amount of Money To Retire With?
If we use the average monthly income per retiree ($4,000) and average range of monthly income ($2,000-$6,000) as targets, the next step is to plan where that money will come from and how many sources there will be. It’s easy to become wrapped up in a specific dollar amount for retirement. While this figure is helpful, what retirees are seeking with this number is a benchmark of financial security. True financial stability comes not just from monthly income, but a solid savings plan and an emergency fund for unexpected expenses.
Below are just a few examples of sources for post-retirement income:
- Social Security – This is typically a central and reliable source of steady income for retirees. However, it should not be expected to cover all monthly expenses, and other sources should provide savings and emergency funds.
- Retirement Savings – tax-advantaged accounts like a 401(k) or IRA are always great options, especially because accounts like 401(k)s oftentimes will have their amounts matched by employers. They can provide a solid baseline income, all while providing tax breaks.
- Pensions – these can be received as a lump sum or in steady payments, which offer different benefits depending on the retiree’s financial situation. It’s worth noting, however, that pensions are becoming less common employer offerings.
- Annuities – like pensions, these provide a variety of income flows, from quicker payouts (immediate annuities) to steadier ones (deferred annuities).
- Life Settlements – most Americans have a life insurance policy, but selling them for a life settlement can be a great way to create additional cash flow or even supplement a retiree’s savings. It can also bring down expenses by eliminating a costly life insurance premium, all the while increasing a retiree’s financial stability.
Each of these options can work together to provide a solid retirement plan, and while it is certainly not necessary to have all of them, using multiples of them in concert will help provide a layered, secure plan. No matter what your client’s situation is, if they have a life insurance policy, they stand to benefit from looking into a life settlement. If you think your client is interested in the possibility of a life settlement, we at Life Settlement Advisors are proud to help seniors achieve the financial freedom they deserve. Get in touch with us to learn more about the possibilities for a happy, comfortable retirement plan.
Did you know you can sell all or a portion of a life insurance policy, even term insurance? Selling an unwanted life insurance policy is no different than selling your car, home or any other valuable asset that will create immediate cash. Contact us today to learn more.
