What does it take to retire comfortably? A new survey by T. Rowe Price shows that you don't need a fortune to be content.
The survey of adults who saved in 401(k)s and who retired in the last five years showed that on average they were replacing only 66 percent of their pre-retirement income -- a much lower percentage than the 85 percent often recommended by financial experts. Their median annual income was $58,000 and their median savings was $473,000 -- hardly the income of millionaires. Yet 89 percent reported that they were either somewhat or very satisfied with life in retirement. Nearly three-quarters of the retirees who were age 65 on average said they were better off than their parents had been in their retirement.
In other words, life is good.
The retirees told T. Rowe Price that their money came from these sources:
- Social Security -- 43 percent.
- Old-fashioned defined benefit pension plan -- 19 percent.
- Withdrawals from savings and retirement accounts -- 18 percent.
Secrets of success
What are the lessons to be learned about money management from these happy retirees? Anne Coveney, senior manager of thought leadership at T. Rowe Price, makes these points.
Money management skills are important. "Retirees are making it work by adjusting their spending," Coveney says, with 63 percent adhering to a budget and 80 percent tracking spending.
Social Security is a big factor. It is worth more to these retirees than both their savings and their defined benefit, old-fashioned pensions combined. Even for these relatively affluent retirees, "Any cuts (to Social Security) would definitely impact them," Coveney says.
Managing savings withdrawal rates is important. Some 60 percent prefer to adjust savings withdrawals up and down in response to the value of their portfolios, but overall, the median withdrawal rate among retirees with a withdrawal plan is 4 percent -- the same as what many experts recommend, but still fairly conservative.
Their investments are moderately conservative. Retirees typically hold 38 percent of their money in stocks, 17 percent in bonds, 31 percent in a money market account and 13 percent in an asset allocation fund.
Have just-in-case cash on hand. More than half of retirees have at least 10 months' worth of living expenses saved in an emergency fund account.
Most retirees don't work. Nearly two-thirds of retirees are not working or looking for work.
Despite modest incomes, only 10 percent find living without a paycheck hard. Coveney says, "We didn’t know what we would get when we asked, but most are making it work for them."
T. Rowe Price simultaneously conducted a survey of workers age 50 and older with retirement accounts who reported feeling more anxious about the prospect of retirement compared to those already in retirement. Maybe they shouldn't be so nervous.
Here's some more encouraging news about successful early retirees.