The idea of living the rest of your days free and clear of debt is a pretty appealing one. The thought of not having to worry about money, and instead being able to take the time to enjoy life is a dream for many. But, is it realistic? With today’s news that the retirement age is only going to go up, and with housing markets still fluctuating, is it really possible for everyone to retire early? Will we have enough money to live on without having to work?
The number one concern for the future of Americans is retirement. The financial crisis of ‘08 was a wake-up call for most—so much so that some analysts have predicted the retirement age will gradually rise as far as age 90.
Learning More About Our Longevity
According to a recent survey conducted by the National Institute on Retirement Security, the majority of baby boomers are getting to the point where they have to decide whether they want to retire and risk running out of money. Unfortunately, at this point in life, many people haven’t prepared for their golden years. As a result, they’re faced with the prospect of their savings and investments running out before their life does.
How much do you need to retire? It’s a question that gets asked more and more the older we get. But how do you know if you’ve saved enough money for retirement? One way to know is to calculate how much money you will need to live comfortably in retirement. The problem with this approach is it can be hard to estimate how much money you’ll need.
If you ever plan to retire, there is one step you must do during your working years. You must save money! Easier said than done right? Unfortunately, the vast amount of Americans are terrible at saving for retirement.
Dire conditions are playing out as baby boomers and Generation “X”ers attempt to transition out of the workforce without properly saving.
Most People Are Not Saving
It has not been a picture-perfect scenario for our current retirees but many of them lived through the Great Depression or the immediate aftermath of it. This experience that was lived through and talked about extensively caused many from this generation to save every penny. So much so that some elderly couples have turned into hoarders.
The fear of not being able to feed your family or find work is embedded in their minds which generally, has helped them prepare to live without a steady work income. The further removed you are from this generation, the less of an impact is made by the Great Depression.
The Economic Policy Institute shows the average savings in America by age:
Here is the break down if charts are not your thing:
These numbers are incredibly dismal. Keep in mind, hopefully by retirement age you have absolutely no debt including your home so you will require less income to live. Looming medical costs are what sneak up on the average retirement couple retiring at 65 – they will need an average of $280,000 for medical bills alone in retirement.²
When Should I Start Saving?
When I started my career, my trainer told me to put money into my retirement account. That was the extent of the retirement advice I was given in my early years – the years that have the most impact on retirement. He did not tell me how much to put away so I felt $50 a paycheck was suitable.
Looking back now, I gave up hundreds of thousands of dollars in retirement by not taking more advantage of time and compound interest.
Regarding the question of how much, we must first look at “when” to save for retirement. If you are putting money away for retirement but have substantial debt, not including your house, experts agree you should temporarily pause retirement funding and destroy the debt as fast as you can.
Your debt is crippling your income and retirement goals. By ignoring your debt, you are trying to put a band-aid on an arterial bleed (sorry for the visual). If you have credit card debt, your interest rate may well be over 20%.
You are not going to get that type of return on your retirement account which is why you should defer that money to your debt and temporarily halt your saving.
As a reminder, the steps to take before taking on retirement are:
How Much Should I Save?
I will be upfront with you on this one, there is no magic number. A general rule of thumb is to put 15% of your income away each year in your retirement account. At the very least, if your employer does a match, you should be contributing at least that much to start.
Many employers match 3%-6% so that is a great starting point if you can’t contribute more.
The match is free money to you so you need to take advantage of it.
When I finally realized I should be contributing to retirement, I started with a percentage of my income. I set up my retirement account to take 10% out of my checks so if I had a month with more overtime, I contributed more to retirement.
Each year that I got a raise, I raised my percentage up 1 percent. By doing this, I was able to increase my retirement saving without noticing an impact on my take home money. There are many other strategies but the more you can contribute, the better.
For 2019, you can save $19,000 a year so do what you can to get as close to that number as possible as you continue to increase your saving (If you are over or turn 50 by the end of 2019, you can contribute an additional $6,000 per year for a total of $24,500 to catch up eligible retirement plans).
If you are a high-income earner and $19,000 does not = 15%, you may also contribute to other IRAs to include a Roth to make up the difference. I explain the difference between IRAs in this post here..
What About My Pension and/or Social Security?
If you have a pension plan, congratulations!!!! However, pensions are quickly dying around the nation as companies and governments struggle to keep them properly funded.
Pensions are being phased out for traditional 401(K) plans with company matches. This is another discretionary measure for retirement that you need to decide how to utilize. I am fortunate enough to have a pension coming for me at the end of my career but I am not banking on it.
There are several companies that have defaulted on their pensions because they were unable to fund them.
I have worked around government for too long to trust that they will take care of me fiscally. I personally am saving as much as I can so if my pension falls through, I will still be able to survive comfortably. If the pension survives, it will be a thick icing on the cake!
The same goes for social security. Do you trust that the fund will still be healthy enough to support you in retirement? I am a control freak and do not want my future in the hands of other people who are fiscally irresponsible.
I urge you to err on the side of caution and do what you can to avoid reliance on others to survive in your golden years.
This article is an overview of the first stages of retirement planning. I dig deeper into mutual funds and other investments strategies in future posts, but until then, work on your debt destruction. If you are debt free other than your home and starting to invest, find out how much you can allocate to your retirement plan and get started!
I realize getting your finances in order is a daunting task. If you can not do it for yourself, do it for your family. Stop giving your hard earned money away to clever marketers who peddle junk that you really don’t need.
Reevaluate your values, needs, and wants – and prioritize accordingly. No hill is too big to climb, it takes one step at a time. I genuinely know you can get out of this mess and retire comfortably. You need to start now and I will be with you through it!
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If you have topics you would like future blogs about, let me know and I will add it to the agenda. Stay safe my friends – ENOUGH IS ENOUGH!