When talking about the cost to retire in America, generally, the comparisons made take into consideration state-to-state data, and even comparisons to other countries, particularly those where Americans move after their work lives are over. However, a number of factors are common to all Americans when they retire, and these are often lost in the details of geographic and cost of living comparisons.
While Social Security payments can be a helpful financial foundation in retirement, it is often not enough to cover anything but the most basic expenditures, especially in the uncertain financial times wrought by the coronavirus pandemic. Since Social Security payments are indexed by “lifetime earnings,” how long someone lives after retirement is not a consideration taken into account by the Social Security Administration.
The same is true with where someone lives. There is no adjustment made for the cost of living. That leaves the primary decision about at what age people should start to take benefits because it affects the amount of payment per month. Some people begin to take Social Security as early as 62, and others delay until 70.
Based on average annual spending for American seniors and the national average life expectancy at age 65 of 19.4 years, the average American will spend about $987,000 from retirement age on. Those hoping for a more comfortable and financially secure retirement should plan on saving a little more.
Of course, some people are in much better health than others, so the $987,000 figure may be too high for people who live into their late 60s and probably too low for those who live into their 90s. It is a grim circumstance to consider but maybe among the most important.
Yet another factor is the extent to which a parent (rarely) or children (more likely) will supplement income. Closely related, some retirees are fairly certain that adult children will care for them at home if they become ill. Others have no children or know theirs are unwilling or unable to be of support.
One final major factor is how people who have money to invest chose to invest it. There has been a temptation for people about to retire, or those who already have, to put their money into fixed income. Unfortunately, bond yields are near all-time lows, and the safest bonds may yield little more than 2%.
Those tempted to ride the current bull market higher may have much larger nest-eggs, unless they remain fully invested in equities until the market tumbles, which it always has. Those who have been in the market for several decades remember that during the Great Recession, the Dow Jones industrial average dropped from a pre-recession high of 14,164.53.1 on October 9, 2007, to 6,594.44 on March 5, 2009. The Dow currently trades at over 30,000.
Individual investors have recently jumped into the market at an aggressive pace. It is worth remembering that, to some extent, the stock market is a gamble.
All of this is only to say that not all retirement considerations are local. Some retirement rules apply to almost everyone.