Retirement in the US traditionally begins at 65. At this age, people generally choose to permanently leave the workforce and live on a combination of investments, a pension and any other benefits they may have earned during their lives. Unfortunately, unless you begin planning early, actually doing this may prove difficult.
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More Than Half Of All Americans Will Retire Broke
A recent survey of 3,000 Americans conducted by CreditNinja.com found that 64% of Americans will retire broke. The pandemic has made things worse for many Americans nearing retirement who worry they may not be able to retire on time.
More than half of the survey respondents (52%) expressed concern that they would not be able to retire when they planned to. In addition, many suggested that they may have to continue to do at least some part-time work to stay afloat financially.
Possibly brought on by the pandemic, these retirement concerns or the potential changes to the Social Security program may have contributed to the additional results found in this survey, including the average age men and women begin to worry about retirement; 25 and 27, respectively.
Where a person lives seems to dramatically impact the age they begin worrying about retirement, as well. According to the CreditNinja survey, Arkansans are pretty chill about retirement and don’t begin worrying until around the age of 42. In contrast, South Carolinians barely enjoy high school graduation before they start thinking about retirement, at an average age of 19!
But how do you begin planning for your retirement? Is it too late for you to start making changes that will help make retirement a possibility for you?
The answer is a resounding no!
Start Saving Immediately
Experts recommend that you start saving immediately. Don’t give up on your retirement goal because it seems like it is out of reach for you. Instead, do your research. Make a plan. That plan may not provide you with everything you need to retire by 65, but by making that commitment and following through with your plan, you can potentially have a sizable foundation built over 5-10 years.
Since your deadline to retire is looming a bit more closely than it was in your 20’s, you have less time to allow interest to accrue and compound on traditional savings. Savings accounts generally accrue annual interest of about 1%. At that rate, your money won’t even grow as quickly as the rate of inflation! Instead, consider investing at least a portion of your money in the stock market, bonds, etc. By diversifying your investments, you decrease your risk while maximizing the potential for returns.
Depending on your age when you start, you may also need to reassess your retirement plans. It isn’t reasonable for most of us to save hundreds of thousands of dollars in just a few years, so your plan to retire at 65 and move to the Bahamas may be impossible. You may, however, still be able to retire at 65 if you are willing to downsize to a smaller home in a more affordable neighborhood, sell your car and choose something cheaper and more economical, and live on a tighter budget. You have to decide which parts of your retirement dream you would be able to sacrifice in order to retire at 65.
Other factors to consider when assessing your ability to retire at 65 include how much debt you’ll have that will need to be paid off and how much of your income will be replaced by Social Security and other sources (like investments and savings). Generally speaking, 70% of your pre-retirement income should be replaced by a combination of Social Security, pensions, income from assets, etc.
Eliminate Your Debt
To make your retirement easier, start now to eliminate your debt. The average American has $90,460 in debt. Interest rates associated with this debt quickly empty your wallet and make saving money even more difficult. Paying off this debt removes your obligation to also pay associated fees and interest, freeing up money to either save or use toward paying off another debt. Your end goal should be to go into retirement debt-free, if possible.
Retirement means a fixed income, which also means a fixed budget. However, you should consider living on a limited budget now. Being aware of how you spend and where will help you eliminate unnecessary expenses and potentially contribute more to savings and help you develop a more complete idea of what your financial needs will be when you do eventually retire.
Finally, consider postponing your retirement for a few years. Even if it is only part-time, having a job can help with your mental and emotional well-being. If having a part-time job allows you to delay receiving social security - all the better! Delaying receiving your Social Security benefits until you are 70 will increase the amount you receive monthly.
To see how early people in your state begin worrying about retirement, check CreditNinja’s interactive map.