A recent Gallup poll showed the average age of retirement for working Americans has now climbed from 63 to 66. One of the main reasons for the three-year increase is the unfavorable financial situation that so many seniors face after retirement.
More specifically, many of them find that what they have in their pension pot barely meets their financial needs. Furthermore, a recent Merrill Lynch report revealed that about 81% of Americans do not know exactly how much money they will need for this new chapter.
So, to avoid various disappointments and unpleasant surprises down the road, planning ahead and knowing the numbers is key to ensure a happy retirement.
Aging in Place vs. Assisted Living — Financial Pros and Cons
We live in a world in which futuristic inventions are no longer a surprise and thanks to innovations in healthcare, reaching the age of 100 is no longer a phenomenon. But this new reality also poses a question for those in their golden years: Where will you grow old?
According to AARP, three out of four seniors wish to age in their current home and community, which in reality makes up for approximately 90% of the U.S. senior population. These high numbers should not come as a surprise as many view it as a preferable option to nursing homes from a financial standpoint and otherwise.
Seniors who opt to age in place spend approximately $10,000 on home modifications (i.e. senior-friendly upgrades) and additional devices that make it a safe and comfortable reality. Futuristic tools and apps also give a peace of mind to other family members who don’t need to worry about their elderly one’s safety thanks to the efficiency of these technological advancements.
But the truly intriguing part is that programs like Medicaid actually cover the costs of assistive technology in certain cases, which further alleviates financial burdens for those who choose to age in place.
On the other hand, however, only 59% out of the 90% of seniors feel that they would actually be able to face the distinct set of challenges that come with aging in place, which also brings assisted living into the picture. The cost of assisted living varies slightly, depending on the location, but on average, assisted living costs approximately $4,000 a month per person, or $133 per day, and adds up to about $48,000 per year, according to Senior Living.
When compared to an average retired couple (living at home) that spends roughly $3,800 a month, it’s easy to conclude that aging in place is a more financially viable option for many. However, it’s important to mention that the price of assisted living is well worth it, as seniors can enjoy luxurious perks like scheduled activities, full-time care, home maintenance and meals just to name a few.
What you save today determines your budget down the road
Financial experts at CNBC calculated the amount one needs to save each month to have a $1 million retirement pot, which is the amount typically recommend to have saved. Here’s what it takes to get there in 20 years.
- With a 4% rate of return: $2,717
- With a 6% rate of return: $2,153
- With an 8% rate of return: $1,686
Knowing how much you need to save and setting realistic goals is key to fully enjoy retirement. Furthermore, gauging your options wisely and choosing what works best for you will also ensure a pleasant retirement, during which hopefully money will no longer be your biggest concern.