Discover effective ways to prepare for retirement and prevent the most dreaded retirement crisis in the US.
These days, most Americans are faced with retirement crisis, they are not prepared financially for post-work years. Sometimes, many others are beset with the problem of not having enough savings that would last them for their lifetime. While there is so much to live for after retirement, the crux of the problem is they don’t have much to live on. Most would like to retire soon and live a life doing what they want to do but unfortunately, they are confronted with savings catastrophe.
So, what is the retirement crisis in the US? A study states that more than half of the working classe in America are at risk of having a pension income when they retire. The New American Foundation says that only a few got a type of asset income. While most of them are looking to retire sooner, most preferably at 62 years old, they would have at least 17-year worth of funds saved but sad to say, only less than half have enough savings to maintain their intended lifestyle.
The Great Recession of 2008 was known to largely affect the savings for retirement on Americans. It also impacted them a lot that tthey had to lose the equity in their homes as interest rates dropped to almost zero. This negative influence generated offered no incentive to deposit money into their savings account. And in a way adding to the misery is the current pandemic wherein millions have lost their jobs and forced to make withdrawals from their retirement fund just to survive. So, if you are still working, you can still make these necessary steps to lessen the vulnerability and have more secure post-work years and prevent retirement crisis.
Saving More to be Retirement Crisis-Proof
In order to avoid a retirement crisis, saving for retirement will help you prepare financially for the years to come. Individuals or maybe couples at that, who are in the bracket age between 62-65 and are intending to retire need an annual budget of $60,000 to fund a comfortable situation. What you must do is to carefully think about how you would like to live your life when retired and add up any possible sources of income to support yourself. This may include investment and savings.
If you are already saving, just keep going, for it is a rewarding routine. And if you’ve not started saving yet, it is high time to do so. You may start small, increasing the amount as the months and years go by and the sooner you start saving, the more time that your money increases. Let saving for retirement be your prime concern. It’s never too early nor too late to start saving and lessen the risk of a retirement crisis.
Diversify and Invest for Fund Growth
While it is inviting to avoid investing in stocks to reduce risk, however, the build-up which stocks provide is paramount at this time in your life. Think about maintaining stocks, bonds, mutual funds and other assets that fit your investment time frame. Analyzing your income sources well in advance of your retired years gives you time to adjust your plans if necessary and weather retirement crisis. This will help you bring about the kind of income that you will need to cover the outlay in a retirement that may last in decades.
Diversification is important as it helps reduce the risk of your investments. Let’s say in 2019 you decided to invest in shares of Delta Airlines since you think it has a bright future in the business but little did you know COVID-19 pandemic hit the world and grounded travel industry. The value of your shares loses but if you have diversified in Pfizer, your loss will be compensated because this pharmaceutical company has boomed during this time especially with its production of the vaccine. So therefore, a good portfolio allocation that balances the concerns of risk phobia and return objectives is the most important in retirement planning to steer clear from a retirement crisis. You need to make sure that you are at ease with the risks in your portfolio and know what is important and what is self-indulgence.
Reduce Your Debt to Prevent Retirement Crisis
As much as possible, try to consider in speeding-up your mortgage payment so that you loan (if there’s any) will be settled before you retire, this is another way to avoid a retirement crisis. To suppress a new debt from your credit card, why don’t you pay in cash for big purchases instead? By avoiding a new debt and downsizing existing ones, you will be able to minimize the retirement income spent on paying interests. A managing director in the Chief Investment Office of the Bank of America once said that if you pay off a credit card that charges 15% interest, it’s equivalent to earning a 15% on a risk-free investment.
If you have a car loan, look at the amount you are obliged to pay every month. Make a plan to pay off the debt, pehaps adding an extra $100 to the outstanding balance per month until it's totally paid off. Well, it still depends on the type of loan you acquired. Having a mortgage into retirement may be sensible but if you are struggling to pay down expensive debts, then it’s high time for a careful deliberation might as well a sanity check. Avoid taking on a new debt or jumping from one debt to another as this is a part of your post-work planning, to keep away from retirement crisis.
Think Ahead and Expect the Unexpected
You know even the best laid plans for retirement may be subject to change. Based on a research by Transamerica Center for Retirement Studies, one in every three retirees had as planned. More than half retired sooner because of health issues or job loss. If this happens, it may be hard to find a job with the same salary level but any job, a part-time perhaps will augment your retirement possibility and avoiding a retirement crisis.
Life is not at all times a bed of roses and there are times when the net worth of your investment in your retirement plan encounters a setback. Aside from losing a job or facing a health crisis, the stock market could crash. At this point, don’t panic but stick to your plan. The markets have been massively down since the start of the pandemic and most investors wanted to sell their shares, although it is a normal reaction. Selling out may be a bad thing to do because you will miss out on regaining your losses when there is an upswing that will result to a possible retirement crisis for you in the future.
It is never too late to get started. While your planned retirement may be a decade away from now, it may seem like a distant event. But you know it is very important to plan meticulously and set goals so that time is on your side and can help you have the means to enjoy the kind of retirement you’ve wanted to be and not having a retirement crisis.
Planning for retirement starts with thinking about your goals and how long you will have to fulfill them. It is a multi-step process that progresses over time. To have a secure retirement, you need to build up the financial cushion that will fund it all. Start learning the above-mentioned steps so as not to experience a retirement crisis in the future.
Read the Entire Retirement Series
- 5 Monthly Dividends Stocks for Retirement
- How Long Term Stock Trading Helps For Your Retirement
- 3 Retirement Investing Strategies to Make Your Money Last
- How to Turn 1% into Thousands in Retirement Income
- How to Get Free Money with the Best Retirement Plans
About the Author
Joseph Hogue is a financial expert and investment analyst. After serving in the Marine Corps, he started his career investing in real estate before becoming an investment analyst for some of the largest private investors. He's appeared on Bloomberg and on CNBC as an investment expert and has published ten books in personal finance. Now he helps investors reach their financial goals and invest in the stock market with some of the same advice he used when working for the rich.