Retirement is the most expensive purchase most people will make, yet many Americans are underfunding their retirement, according to a new study from Merrill Lynch and Age Wave.
The study, Finances in Retirement: New Challenges, New Solutions, is the capstone of a four-year, 50,000-respondent investigation into the changing lifescape of retirement conducted by Merrill Lynch and Age Wave.
The study reports that retirement carries the highest average price tag compared to life’s other biggest expenses, such as buying a home, raising a child and paying for college.
“Retirement is life’s most expensive purchase and on average the cost of a retirement is actually many times greater than the cost of other big-ticket items as well,” Lorna Sabbia, Head of Retirement & Personal Wealth Solutions at Bank of America Merrill Lynch, said during a webcast briefing.
The average cost of retirement is more than $700,000 or about two-and-a-half times that of the average house and nine times more than the average cost of a college education.
By comparison, the average cost of a home is $278,300, the cost of a college education is $83,400, and the cost of raising a child to age 18 is $245,300.
Despite retirement’s hefty price tag, the report finds that 81% of Americans don’t know how much they’ll need to fund their retirement. In addition, a growing number of younger generations think they’ll need to personally fund a larger portion of their retirement and therefore expect to rely less on their employers or the government.
“That three-legged stool for funding retirement – that being Social Security, employer pensions and personal savings – is becoming wobbly at best for most people,” Sabbia said.
According to Sabbia, millennials expect 65% of their retirement income to come from personal sources.
Add to that the fact that longevity is increasing, and more people are going to personally be funding longer retirements, according to Ken Dychtwald, president and founder of Age Wave.
“Future generations will be funding much longer retirements than their predecessors, Dychtwald said.
Kevin Crain, head of workplace financial solutions for Bank of America Merrill Lynch, offered some advice on how advisors can use this retirement price tag to help clients save more.