By the time you reach age 50, you have already faced many money challenges including paying off your student loans, buying a home, merging finances with a spouse, and caring for children. But many 50-somethings think the biggest financial challenge of their life is still ahead of them: retirement.
Over half (53 percent) of Americans over 50 think their most challenging financial issues are still in the future, according to a recent Kelton Research survey of 642 Americans age 50 and over commissioned by Charles Schwab. Just 45 percent of older Americans say they have already overcome their biggest money issues. These 50-somethings say the financial tests they still face include keeping up with daily or monthly expenses in retirement (34 percent) and deciding how to invest and preserve their nest egg (32 percent).
Most retirement savers over 50 say they know how to manage their finances successfully (67 percent) and have made smart financial decisions to date (69 percent). Yet, a third (33 percent) of older workers are counting on an improving stock market to boost their retirement savings. And only slightly more than a third of those surveyed (36 percent) correctly identified the age when they will qualify for full Social Security benefits.
Only about half (55 percent) of the older workers surveyed say they know how much money they will need in retirement. “A lot of people don't know how expensive retirement is,” says Carrie Schwab-Pomerantz, president of the Charles Schwab Foundation. “You not only need to save in a 401(k), but also in an IRA and a taxable account to achieve the lifestyle you've become accustomed to.”
When asked to estimate the percentage of their pre-retirement income they will need to cover living expenses in retirement, the older workers gave a wide variety of answers. The most common estimate is between 71 and 80 percent of their current income (22 percent). But almost a third (31 percent) of retirement savers say they will be able to get by on less than half of their current paychecks.
Some retirees will need to reduce their standard of living to get by on half of their current income. “I just turned 50 last year and I think our age is a perfect time to sit with a financial consultant, someone who will look at the assets we have and the kind of income we can expect to generate from them, and compare it to what we think our financial needs will be in retirement,” says Schwab-Pomerantz. But there is one perk of earning less in retirement—lower taxes on traditional 401(k) and IRA withdrawals. Most older workers (75 percent) expect to be in a lower tax bracket than they are now when they retire.