It Is Never Too Late to Start Saving for Retirement

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People may think that as they get closer to retirement that there may be less and less reason to invest in their retirement. Especially if they haven't started saving already. This is partly due to the the common mantra that investing in stocks or bonds is a long term endeavor. Therefore, if they have not begun to save for retirement by the time they are 60 or even older, then they will just have to figure out a way to live on Social Security alone. Fortunately, this is not the case. Since the average retiree will live an additional 18 to 28 after retirement, any amount of investment savings at any age will have an impact during retirement and improve a retiree's quality of life.


The Life Expectancy of a Retiree


According to the CDC, the average lifespan of someone living in the United States is 78.8 years. The average lifespan of a female is 81 and a male is 76. But these stats are grossly misleading for those about to retire. The reality is that those who live to retirement age will very likely live significantly longer than the average lifespan.

According to the Actuarial Life Table published by the Social Security Administration, if a male retires at the age of 65, then he is likely to live another 18 years or more. If a female retires at the age of 65, then she is likely to live for another 20 years or more. Even more interesting is that if a couple retires together at age 65, then it is likely that one of them will live at least another 28 years. This means that at least one of them is likely to live until they reach age 93!


Expected Investment Returns During Retirement 


Since 1972, the stock market has returned an average of 8.7%. Over that time, only twice has there been a 10 year period that did not have a positive return. There has never been a 15 or 20 year period with negative returns. Therefore, based on actual historical returns, a couple, whose longest living partner is likely to live util they are 93, has a 100% chance to realize significant positive returns on any investment savings they have. 

The returns from 1988 to 2017 represent the average return for any given 30 year period in the stock market. Assuming a retiree was able to invest only $10,000 during a similar time period, the retiree would be able to withdraw approximately 5% plus inflation each year. This starts at a withdrawal rate of $500 a year and culminates in total withdrawals over that 30 year period of over $23,000. In addition the retiree's original principal would have turned into $38,000 which they could pass on to their heirs. The initial investment of only $10,000 produced over $50,000 in profit. 

The worst 30 year period in market history was from 1973 to 2002 primarily due to the massive inflation of the seventies. In this worst case scenario, the retiree would still be able to withdraw some income every year (at least a few hundred dollars during the worst years). The total withdrawals in this scenario would equal $19,000 with a final account balance of $16,000. In this worst case scenario, the initial $10,000 still produced over $25,000 in profit. 

The best 30 year time period was from 1975 to 2004. If a retiree is fortunate enough to retire during a similar bull market run, the total withdrawals would equal over $34,000 with a remaining balance of $36,000. That would produce total profits of over $60,000.  


Conclusion 


A person retiring at the age of 65 is likely to live at least another 18 to 28 years beyond retirement. With an investment of any size large or small, a retiree will reap yearly benefits throughout retirement far beyond the initial investment amount. Most retiree's may only need a small amount of additional income to supplement their Social Security during retirement. Don't under-estimate the power of small beginnings even if starting the nest egg very close to retirement. It could make the difference between living on a shoe string budget the rest of your life and having enough wiggle room in your budget to enjoy retirement.


References


https://www.ssa.gov/oact/STATS/table4c6.html - Social Security Actuarial Life Table





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