January 26, 2024
Whether you’re in a challenging financial place from income changes or high debt that has just become too much to bear...Read More >
Retirees today are finding it more and more difficult to live on their savings. Opinions differ on the cause and severity of this problem. PNC’s CEO William Demchak believes a major factor is the Federal Reserve’s refusal to raise interest rates. He believes this is placing a heavy financial burden on retirees, forcing them to work much longer than they planned to. Demchak says, “We’ve trained people their whole lives that once they retire, they are supposed to change their 401(k) [savings] and put it into kind of a less risky fixed-rate investment portfolio.” That just doesn’t cut it anymore.
Some believe this is indicative of a retirement crisis, while others believe it’s more a symptom of a series of hardships that will pass. Whether or not it’s truly a crisis, there are some undeniable problems with the way many Americans are expected to retire. This situation can be heartbreaking for retirees or those approaching retirement, and it is something that millennials must learn from if they are to change things for themselves. By following these tips, millennials may be able to secure a decent retirement.
Proper Budgeting and Saving
The National Institute on Retirement Security found in 2013 that the median working household had a retirement account balance of about $3,000. This study also found that households nearing retirement age only amassed a median savings of $12,000. This would barely sustain anyone for more than a few months, let alone through retirement.
This problem is compounded by a number of problems. According to economist Teresa Ghilarducci, only 32% of working adults are enrolled in a retirement savings plan — and access to plans has been decreasing. To combat these difficulties, millennials need to get into the habit of budgeting.
Keeping a proper budget gives people a better sense of their monthly expenses and how much money they can comfortably save. If you have debts that impact your ability to save, budgeting will make paying them down more manageable. By developing a budget and sticking to it consistently, you can strengthen your overall financial situation and set savings goals to help build your retirement account.
Choosing the Right Retirement Plan
Did you know that retirement plans carry a cost? Not many people are aware of this. According to Ghilarducci, some 401(k)s carry a charge as high as 1%. While this might not sound like a lot, it can have a significant impact over time. This cost can create difficulties in the long run, especially if you ever need to borrow from your retirement plan.
If you have a 401(k) or any other type of retirement account, make sure you’re aware of the fees associated with it. See if there are plans available with fees less than 1%. Similarly, be aware of the exact amount of money you and your employer are able to contribute to your plan. Keep your own contributions consistent and familiarize yourself with your employer’s contribution matching policies. This way, you’ll be able to better monitor your balance and account for the impact of fees.
Don’t Plan on Retiring Early
This might sound like a bitter pill to swallow, but it could actually make a significant difference in your retirement savings. By working longer, you’ll be able to contribute more money to your retirement savings and to social security. When you do eventually retire, you’ll have more to live on and be less dependent on social security.
But What About Bankruptcy?
Life is unpredictable. No matter how well-planned your retirement strategy may be, an unexpected emergency, bad investment, or issue with your credit could put you in a position to declare bankruptcy. Thankfully, if you find yourself in this situation, your retirement accounts should be unaffected. With few exceptions involving traditional and Roth IRAs, retirement savings are considered exempt from bankruptcy.
In fact, bankruptcy could help put you back on a strong financial path and improve your ability to build retirement savings. If you’re considering bankruptcy, check out the Bankruptcy Roadmap on our website or give us a call.