NEW YORK (12/14/11)--The Great Recession has forced Americans to rethink their definition of the American Dream. Studies reveal a shift toward more modest goals--having a financial safety net and achieving personal fulfillment over becoming wealthy. Despite changing the yardstick, the dream is still out of reach for many (Time
Nearly three quarters of Americans view financial security--in the form of savings to cover layoffs, illness, or other emergencies, as well as insurance and retirement accounts--as critical to achieving the Dream, according to the 2011 MetLife Study of the American Dream. However, nearly as many say they don't have a safety net in place, 53% report living paycheck to paycheck, and 38% report not having an adequate retirement savings plan.
The study also revealed that 76% of Americans are now taking a do-it-yourself approach to building their safety net and protecting their family's future, rather than relying on corporate or government programs.
Take steps now to get a better handle on retirement expense projections, whatever your definition of the American Dream. Ask yourself some simple questions and then do your own math:
Avoid the disappearing act. Identify spending patterns now and determine what you won't be paying for in retirement. Will you pay off your mortgage? Finish paying off the kids' college debts? Save on taxes once you're not working?
Get real. Count on higher health care costs, and determine if your dream includes travel plans.
Expect a spike, but not for long. Studies indicate that your first years of retirement will be your most expensive (Yahoo! Finance Dec. 1). For average households, individuals age 65 to 75 spent an average of $41,434 in 2010, or roughly 72% of the amount they spent during their prime earning years, according to Bureau of Labor Statistics data for 2010. In comparison, individuals older than age 75 spent only about 55% of their highest-earning years' income.
Size up current savings. Do you have a pension from your current or previous jobs? List your balances in employer-sponsored retirement plans, IRAs, Roth IRAs, or other accounts. Visit ssa.gov for your projected Social Security payout.
Know your life expectancy. Visit socialsecurity.gov/planners/lifeexpectancy.htm to calculate the average number of additional years you can expect to live.
Don't ignore inflation. Inflation has averaged 3% a year since 1925. If you need $50,000 in 2011 to cover annual living expenses, at 3% inflation you'd need about $90,000 in 2031, and $141,000 in 2041 just to maintain the same purchasing power.
Run the numbers. Use more than one retirement calculator and plug in the information you've collected. Expect different results across calculators--they all ask for slightly different information. Then tweak the data. By changing retirement age or expected interest rates, you get a sense of how small changes now have a big effect on how long your savings will last.
For more information, use "Calculator: How to Calculate Your Retirement Needs" in the Home & Family Finance Resource Center.