21 Jan Time Can Be an Enemy of Retirement
The prospect of retirement is fairly daunting, certainly for those that have failed to make sufficient provision. Recent figures suggest that 13% of US Adults are saving 20% or more of their income on retirement. The problem is that if they have left themselves insufficient time then even that amount may not give them the comfortable retirement years they seek. Those who start saving in the 20s or early 30s are giving themselves time to save and compound interest ensures growth even in years when guaranteed rates are low with installment lending.
The problem is that those who prioritized paying off their student loan and bought the trappings of a successful career, car and apartment, before they had had that successful career often ignored retirement as something in the distant future. Bad decision! There are retirement experts who doubt that even 15% of monthly income put aside for retirement will be sufficient unless it is something that is done for 30 years without fail.
Living Longer with Limited Resources
There are a couple of factors that are making things more difficult. It is surely good news that people are living longer so the average person can expect more years but those years have to be funded with no regular income other than the savings that have been made and Social Security benefits. The problem is that the Social Security System is in trouble. The pressure of more people claiming for more years and fewer paying in has resulted in estimates that the level of benefit will need to fall by 25% by the 2030s unless extra funding is provided. That funding can only come from tax and that is an extremely unpopular prospect for the current makeup of Congress.
It is no easy task for anyone to save a high proportion of their income for retirement. Maintaining a current lifestyle means that those that have seemingly high income may be able to build a significant fund but then they are used to spending so in the absence of making retirement sacrifices, they are little better off than those who are starting to save in middle age.
There are investments that generally provide good returns but the main thing that everyone should look at is their existing budget, the potential of making savings, without that necessarily meaning sacrifice, paying off any expensive debt, and staying in control.
It seems that the problem is one that recent graduates, those in their 20s in general, have got the message and there are signs that they are including retirement provisions in their budget. They recognize that a 401(k) makes sense with contributions taken before tax and employers matching their saving up to a certain level. It is the generation above where the problems seems to lie.
As a matter of urgency those who have no monthly budget as such and poor retirement provisions should sit down to look at the figures.
- Is there a monthly surplus or deficit?
- Are you carrying expensive debt, typically interest payments on credit card balances that are being carried forward each month?
- Have you checked whether there are more competitive suppliers of utilities, insurance or telephone?
- Is there any sundry waste each month that you can cut out without making any real sacrifice?
These typical questions can lead to savings in the expenditure column. Take for example credit card debt. There are personal loans that are much cheaper than carrying credit card balances. The level of interest credit card companies charge is penal; good internet lenders offer personal loans much cheaper. Pay off balances and have the discipline not to build them up again by only using cards for convenience and paying off balances in full. The saving can go towards retirement.
The exercise of making savings on regular monthly household expenditure takes a little time but it will be worth the effort. There are comparative websites that will do some of the work for you. Perhaps you can cut back on eating out or visiting the coffee shop less frequently. Whatever you decide if you can create a surplus and have the discipline to follow your new budget, and revise it as circumstances demand, you can save towards the future whatever age you are. Doing nothing is not an option if you want retirement to be a comfortable time.
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