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Most Americans are unprepared for retirement.
While most non-retired adults have some sort of nest egg, only 36% believe their retirement savings are on track, according to the Federal Reserve.
A separate Insured Retirement Institute survey found that most workers don’t have enough retirement savings and don’t put enough aside to catch up.
This is a problem that existed before the Covid-induced recession. For some, the pandemic has exacerbated the problem. One third of Americans who planned to retire say it will happen now later because of Covid and that around 14 million people stopped contributing to their retirement accounts each month starting in March, according to a study by Age Wave and Edward Jones.
Still others have been given the opportunity to put more money aside through forced spending cuts.
In fact, low-wage workers, many of whom do not even have access to retirement savings plans, have been hit the hardest by the layoffs, said Anqi Chen, deputy director of savings research at the Department. Boston College Center for Retirement Research. They are also left behind in the recovery.
“About half of workers at some point in the past 40 years or so do not participate in a retirement account,” she said.
Yet saving for retirement is one of the most important things you can do. Here’s how to get you started.
Start early and be consistent …
If you are young, the best thing to do is to start saving for retirement earlier, as your savings will benefit from compound interest.
Also be consistent with your contributions.
If you open a Roth Individual Retirement Account at age 18, for example, contribute $ 100 per month for the next 40 years and assume an average annual rate of return of 12%, you would end up with $ 1 million. , according to a personal finance expert. Suze Orman. If you wait 10 years to start, the end result would be $ 300,000 at age 58.
â¦. But it’s not too late
If you didn’t start saving at a young age or had to stop putting money aside during a time of financial stress, don’t be discouraged, said Chartered Financial Planner Abbey Henderson, CEO of Abaris Financial Group, based in Concord, Massachusetts.
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âMy fear is that people will be like, ‘I’m late. I’m never going to make it up, so I’m not going to try, “” said Henderson.
“Every little bit counts,” she said. “Take small steps.”
So even if it’s only $ 25 a week, just do it. Once you’re comfortable and can go higher, do it.
Have the right asset allocation
Have the right mix of assets in your portfolio based on your risk tolerance. Stocks, for example, are riskier than bonds but offer a higher return. You can take more risk when you are younger because your portfolio has time to recoup losses.
It’s important to choose an asset allocation that will allow you to sleep at night so you don’t panic by selling when the market goes down, Henderson said.
Steve Parrish, co-director of the New York Life Center for Retirement Income, also suggests considering annuities as part of your overall retirement strategy, as many companies no longer offer pensions. Annuities provide guaranteed income in retirement.
Don’t be fooled by the final number
In the United States, workers believe an average of $ 500,000 is needed to feel financially secure in retirement, according to a recent survey by the Transamerica Center for Retirement Studies.
Still, the final number really depends on your specific situation, like your income and living expenses.
Instead, consider saving 15% or 20% of your income in a variety of vehicles, such as a 401 (k) plan, savings account, and 529 college savings plan. That 20% can also include any employer correspondence you get in your 401 (k).
âSo much can change between now and retirement,â said Henderson. “You can drive yourself crazy trying to target a number in your twenties and thirties.”
Think about phased retirement
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Instead of retiring en masse, consider reducing your part-time work hours.
âPeople are starting to say maybe it’s a process of slowing down and ultimately full retirement,â said Parrish, who noted people are living longer now.
It will also allow you to delay social security for as long as possible, so that when you collect, the benefit will be higher.
Just make sure you pay attention to your employer’s benefits. If you stop too gradually, you risk losing your health insurance. Health insurance does not begin until the age of 65.
Don’t forget about inflation
Don’t fall into the trap of ignoring inflation in your retirement plans, Henderson said.
Have enough diversification in your portfolio, including perhaps real estate, treasury bills or commodities adjusted for inflation, and stick to your schedule, she advised.
Remember, too, that Social Security is your best hedge against inflation, Parrish pointed out. A recent estimate puts the cost of living adjustment for 2022 at 6.1%.
Of course, depending on your age, there are concerns about the program itself. The latest projections show that the fund will not be able to pay full benefits as planned until 2033.