Credit: While the median income may not be the right level for you, it can help you consider where you you stand. The bottom line is this: Will your retirement nest egg produce the amount of income you need?
While the median income may not be the right level for you, it can help you consider where you you stand. The bottom line is this: Will your retirement nest egg produce the amount of income you need?
Data source: Social Security Administration. Median income as of 2012; Average benefit as of 2013.
3. Median 401(k) and IRA balances don't bridge the gap
Unfortunately, there's a lot of evidence that income from retirement plans like IRAs and 401(k)s won't bridge that gap for the average retiree. According to data gathered by the Employee Benefit Research Institute, the average 60-something with a 401(k) had just more than $147,000 in 2012. Additionally, the median IRA owner between 65 and 69 had $66,800 invested.
Based on the 4% annual distribution strategy, you're looking at $5,900 in annual income from that 401(k) balance, and $2,672 in annual income from the median IRA. Factor in longer lives, and that means increased risk of running short the older you get.
4. Boston College study shows 45% of Baby Boomers will come up short
Boston College's Center for Retirement Research recently released its National Retirement Risk Index, which measures the percentage of working-age households at risk of not being able to maintain the same standard of living after retirement. The most recent study estimated that 52% of current households are at risk of falling short in retirement.
For context, this is well up from levels in the 1980s and 1990s, but a continuation of an upwards trend during the past 30 years. Looking specifically at Baby Boomers, the NRRI estimated that 45% of households are at risk, a slight increase from 44% in the 2010 NRRI study.
Key factors include an increase in the full retirement age for Social Security benefits, the decline in interest rates that has lowered income from savings, and more stringent reverse mortgage rules, making it harder for some people to use their home equity for income.
5. Income and wealth inequality is generational
Income and wealth inequality are popular buzzwords today, as the "one percent" continues to outpace the rest of the population -- especially the poorest -- in both earnings and total wealth growth. And while this is a serious challenge for younger workers, it's not unique to them. The Hamilton Project study cited above found that the median -- where half are above, half are below -- near-retiree household had a net worth about $11,000 lower in 2013 dollars than this prior generation.
However, when you segment the top 50% from the bottom 50%, the story changes. For those in the bottom 40% or below, their wealth is significantly lower -- as much as half to two-thirds of the prior generation. However, those in the top 60% and above have seen their wealth increase by 20% or more. And we aren't just talking about real dollars, but inflation-adjusted dollars, meaning the poorest near-retirees are losing ground, while the wealthiest are doing better and better.
6. Counting on home equity to bridge the gap
This is especially true for many middle-class households, which count on home equity for between 37% and 50% of median net worth. However, it's important to note that more stringent reverse mortgage guidelines are making it more difficult to capitalize on home equity for income.
Will you be ready to retire on your terms?
Where you compare to the stats above is less important than where you measure up against the wealth and income you'll need to meet the standard of living you expect in retirement. Unfortunately, the data above indicates that the average near-retiree will come up short; this means he or she will need to continue working, lower expectations and expenses in retirement, or likely for many, both.
If you find yourself in this situation, it's not too late to take steps today, even if it means delaying retirement a few years, or making some big sacrifices in the short term. If you still have time, use it to your advantage, and start making lifestyle changes today. Not only will this leave you with more wealth when you do retire, it can help you develop healthier spending and saving habits that will pay off when you're no longer drawing a paycheck.
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The article Top 6 Retirement Facts Baby Boomers Need to Know originally appeared on Fool.com.
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