Retirees have a low retirement income replacement ratio

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In order to maintain the standard of living in retirement, the rule of thumb is that you can replace at least 70% of your income from work.

But many retirees are loudly missing that retirement income target research by Goldman Sachs Asset Management. The survey polled 1,566 US respondents between July and August 2022.

Only 25% of retirees generate this level of income, the company’s study found. More than half of retirees – 51% – now get by on less than 50% of their pre-retirement income.

The gap is not surprising given that more than 40% of those still working say they are behind on their retirement savings. Generation Xers — sandwiched between Millennials and Baby Boomers — were the most likely to say they are behind in retirement, at over 50%.

Competing life goals and financial priorities – a so-called financial vortex – can get in the way as savers balance other roles as parents or caretakers and as homeowners or renters.

“You have all these competing priorities that can crowd out retirement planning,” said Mike Moran, senior pension strategist at Goldman Sachs.

If you’re still working, there are steps you can take to significantly increase your cash flow in your later years and improve your chances of achieving that 70% income replacement rate.

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1. Downsize your lifestyle

By lowering your cost of living now, you’ll need less income in retirement. Ask yourself if you’re spending less than you’re taking in, suggested Sharon Carson, fixed income strategist at JP Morgan Asset Management.

“If you’re not already doing that, this is the perfect place to start,” she said.

Ted Jenkin, CEO and Founder of Oxygen Financial and a member of CNBC’s Financial Advisor Council said it is recommending a 21-day budget purge to help people cut spending.

Buy every single bill in your household for 21 days to see if you can get a better deal.

2. Increase your savings

Tips for structuring your retirement provision

Even if your budget is tight, you can add as much as 1% of your salary to your retirement savings can go a long way when you eventually have to withdraw that money.

In general, according to pension experts at JP Morgan Asset Management, you should spend 15% of your salary on retirement. This may include a company match if you have one.

You may not reach 15% immediately.

“Look at what you can do each year,” Carson said. “Anyone who can do something has the long-term advantage of compounding.”

3. Find ways to save outside of work schedules

4. Stay invested

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The #1 preferred source of retirement income for retirees surveyed by Goldman Sachs is investing, Moran said. To get more income out of your portfolio, consider dividend-paying stocks or municipal bonds, he said.

The key is to stay invested and not dump your money in and out of the market, Carson said.

Admittedly, losses hurt. But trying to time the market can be a losing battle, especially as the market’s worst days tend to be closely followed by their best days.

“If you’re trying to time the market, you have to get it right twice,” Carson said.

5. Delay claiming Social Security benefits

6. Consider an annuity

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7. Plan to work a little longer Retirees have a low retirement income replacement ratio

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