7 Reasons to 'Retire and Relocate' When Savings Fall Short: Vanguard

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Two retirement realities are unfolding in the United States, according to the newly published 2023 Vanguard Retirement Outlook report.

The paper, penned by a team of six top researchers and analysts at the firm, shows that high-income workers — those in the top 5% of income distribution — can readily finance life after labor. The rest of Americans may struggle, and that includes people in the upper-middle class as well as those of more modest means.

The analysis explores the drivers of these projected outcomes for cohorts from three generations, including “late” baby boomers who are now in their early to mid-60s, members of Generation X between the ages of 49 and 53, and millennials between the ages of 37 and 41.

At a high level, the paper finds that Americans who have annual earnings in the 25th, 50th and 70th percentiles of the national income distribution may all struggle to accumulate enough to meet the spending levels typical of today’s retirees.

For example, the researchers estimate that late boomers at the bottom quartile of the income distribution will be able to sustain retirement spending equal to only 64% of pre-retirement income, significantly below the traditional target of between 70% and 80%.

National survey data suggest that current retirees from this working cohort spend 96% of their pre-retirement income, according to Vanguard, revealing a 32 percentage-point gap between typical retiree spending and the projected spending that they can sustain throughout retirement.

Perhaps most interesting in the paper is the section that speaks to the levers that middle-income Americans can pull to give themselves a better shot at a stable, dignified retirement. These include reducing lifestyle today and saving more or, for younger investors, adjusting investment allocations in order to take fuller advantage of their longer investment time horizon.

Among the most powerful levers, according to Vanguard, is the opportunity to use home equity — a home’s value minus any mortgage — and the retire-and-relocate strategy. In fact, Vanguard’s analysts find that including this approach in their projections provides for a much rosier retirement picture for working Americans.

See the accompanying slideshow for eight key insights about how the retire-and-relocate strategy can bolster clients’ retirement expectations and help them avoid having to pull other, potentially more painful levers, such as reducing lifestyle or delaying retirement.