Retirement is one of the things that every American dreams about. The problem is, unlike the Greatest Generation, most Baby Boomers do not have the luxury of having a job that will provide us a steady stream of income in our retirement after leaving our position.
The days of the gold watch and monthly pension has been gone for nearly 30 years, so now it is up to us to plan for our retirement on our own.
The average Baby Boomer began working sometime in the late 60’s or early 70’s, right out of high school. Back then, like most people even today, young people did not think about retirement.
According to statistics, by the age of 65, only 4% of us have adequate money for a retirement fund. This means, for most of us, having to get a job after retirement is almost a necessity in today’s economy.
A few more statistics really show where most of us are currently. The average 50 year old only has around $43,000 saved.
A person who retires at age 63 will need over a million dollars in savings to draw around $5,000 per month.
Even if someone wants to live on the lower end of stable, with an income of $2,000 per month, they would still need $424,300 to make it over 30 years.
A lot of people just think about their day to day costs during retirement, thinking about how they will pay the utilities and keep groceries on the table.
They may even have their mortgage paid off and won’t have to worry about paying for a home.
However, it is also important to consider that the average total cost for a couple over 65’s medical bills can reach $218,000 over a 20 year span. That is nearly half of all of the savings if they plan for 2,000 a month. That barely leaves enough money to put food on the table.
Between the lack of savings, and the rocky economy of the late 2000s, we are hurting financially. Many Americans lost a lot of their wealth from dipping home prices and the stock market crashing.
Many people panicked and moved their money into commodities like gold, silver and diamonds. And while those markets were incredible for a few years, they came crashing down too, as the market became too crowded.
Our financial woes can be traced back for decades, but looking for blame will not bring back lost revenue. So instead, the question is: what can we and other Americans do to save money for retirement over the next few years?
Most companies these days do not provide a pension, and Social Security will only provide a meager existence.
To guard oneself from financial calamity like the crisis in the mid-2000s, it is crucial to diversify the portfolio, just like a business would. If a company provides a 401k, that is a good start.
Most of us should also get into an IRA, which are usually tax deductible and are only taxed once the retiree draws from it. The law allows a person to contribute up to 5,500 a year into an IRA.
If our employer does not provide a 401k, you should consider a mutual fund. Depending on your age, you can look into both short term and long term funds. Some mutual funds are extremely volatile, so it is important to research the company before getting involved.
The best part about mutual funds is that they are usually long term, so they are shielded from temporary stock market dips. The fund manager will move the money from stock to stock to keep it stable, and help it grow a few percentage points per year.
No matter what options you decide upon, it is important to remember that this savings does not need to be touched until retirement. Mutual funds can go up and down, but cashing out at the first sign of trouble usually leads to more loss than just hanging tight and letting the market recover.
A 401k is not an emergency fund and should not be used like one, either.
Short term goals should include putting together an emergency fund, then setting up a retirement portfolio. You should figure out how much you will need for retirement and begin the process of saving immediately.
Regards,
Ethan Warrick
Editor
Wealth Authority
