Saving for retirement is one of the most important financial goals for everyone. If you are not going to be on the receiving end of a large trust fund or are not already wealthy, saving for retirement should be at the top of the list as a financial goal. Having concerns about retirement is something a number of people have. As we age there can be growing anxiety if there will be plenty of money available to live comfortably to the end of life.
Retirement years should be a time that is enjoyed. Yet, a large part of society does not plan properly for retirement income. Planning for a comfortable retirement is not an option to delay. Why is it so important to plan for the years when our working life ends?
Alarming Statistics Saving for Retirement
There was a time when Americans went to work and it was not uncommon to stay with the same employer for a lifetime. This provided a reliable paycheck and a pension that would pay a retiree for the rest of their life. This has not been the norm for quite some time as pensions have all but disappeared for a large number of workers. Not having an employer-provided pension has put the responsibility of saving for retirement on an individual and not many employees are taking the accountability seriously.
It is estimated that 1 in 5 Americans has no retirement savings according to a 2018 Planning and Progress study by Northwestern Mutual. Furthermore, the study revealed that only 33% of the generation closest to retirement have between $0 and $25,000 saved. This amount of savings is not nearly enough to produce an income for several years of retirement.
Not having sufficient retirement income is a serious issue. This shortfall in money available for retirement is only increasing as people are living longer. In addition, it does not appear that the rising costs of healthcare will be declining anytime soon.
Extinction of the Defined Benefit Pension Retirement
Defined Benefit Pension plans are a type of retirement plan where an employer pays a set amount of money in retirement for life. The amount is most often based on the last salary of an employee and their years of service. This type of pension was offered by many employers at one time, but it has been declining for several years.
The Bureau of Labor Statistics released a report stating that only 18% of private sector employers offer a Defined Benefit Pension as of 2017. Public sector employees are still offered these pensions and at a larger percentage compared to private employers. This is mostly seen in governmental job positions. It is estimated that the number of these Defined Benefit plans may eventually go to zero in the public sector.
Why are Defined Benefit Pensions Being Eliminated?
The simple reasons employers are eliminating Defined Benefit Pensions is the cost and risk. These types of plans are more expensive to administer. The way they work is the employer offers a guaranteed income. With market downturns, it can be more challenging to pay out on the pension. This is a risk employer’s take and they are choosing to minimize this risk.
With the drop in Defined Benefit Pensions offered, workers have a growing responsibility to manage their own retirement savings through Defined Contribution Plans. These are retirement plans that may be associated with a 401k. The employee makes contributions and the employer may make a contribution in the form of a matching dollar amount. This is the increasing type of retirement plan while the Defined Benefit plan is done away with over time.
Don’t Want to Continue Working or Can’t Work
Without having a good amount of retirement savings it is easy to claim that we will just work until we no longer can. However, the reality is not many people want to work forever. There may come a time when you just don’t want to work any longer. There could be several reasons for this, such as dislike for the job or being phased out by younger workers. As we get older, we also tend to get tired easier and don’t have the same energy.
It’s not just a matter of wanting to not work any longer for the reason to retire. Health issues are more likely as people age as well. The possibility of things that could limit a person’s physical activity is a cause for concern. If something like this were to occur, it may not be possible to work any longer.
Retire Early
It’s not entirely impossible to retire earlier than what would be considered a normal age to stop working. It is a potential reality with saving early and aggressively for retirement. A young adult that begins saving in their 20’s and living well below their earnings with a goal to retire in their 50’s is not far out of reach. With control over impulse buying, not getting into debt, and planning early, a young retirement age could be a goal.
Retiring early has a number of advantages. The period of time sacrificed for living with limited spending could then be enjoyed. This would equate to being able to enjoy life and spend more time with family and friends.
People are Living Longer
It is important to plan for many years in retirement as people start living longer. The advances in technology and healthcare are increasing life expectancy. According to the Social Security life expectancy calculation, if a child is born this year in 2019, a male has a life expectancy of 83 while a female is age 87. Retiring at age 65 this would leave up to 22 years or more in retirement.
Family Burden
All too often there is a heavy price to pay for no retirement planning. There is nothing wrong with taking care of an elderly family member. If a person has the means to do so, helping the family is what should be done. However, often people that have financial difficulties are put into a situation to assist with elderly family members. This can create a considerable amount of stress among families and even damage relationships long term. Also, it can damage future generations by limiting their opportunities for success.
Family should never really be classified as a burden and most people would do everything they can to help each other. It may not be family members that truly feel a burden, but the retiree might feel as though they are a inconvenience personally. Being in retirement is supposed to be years of happiness. But it may not feel this way without proper planning.
Lifestyle
Not saving for retirement will have a major impact on your lifestyle when the day arrives. It may not be what someone is accustomed to with changes in living conditions, not having the money for leisure activities, and struggling to make ends meet. Retirement will not be enjoyable and it may only be brief with the need to take part-time work in order to meet financial ends.
Retirement is frequently viewed as a time to enjoy the rest of your life. It is a period to do the things there was never any time for while in a career mindset. It might be time to travel more, pick up a new hobby, or just relax and enjoy not being limited by the constraints of working full-time. Having a financial resource to do more with a lot of free time will not be possible without retirement savings.
Social Security Will Not Be Enough
Social Security should not be the primary plan for retirement. It was never intended to provide a full lifetime retirement income but used as a portion of it. Social Security is only supplemental income. It will likely also have the minimum age requirements to collect it increased as time goes on.
Personally, I do not believe Social Security will be going anywhere even though there are people that are certain it will be bankrupt at some point. A reduction in benefits and age limits will likely increase further to keep it going. However, it will still be around for retirement in future years.
Although Social Security will likely still be around in the future, there is some uncertainty to what it may look like. For this reason, it is particularly important to not entirely count on it. If you have never looked or have no idea what your Social Security benefit might look like at retirement, their website ssa.gov has an online portal that will provide this information.
Conclusion
With Defined Benefit Pension plans being in danger of extinction, there is no one that will save for your retirement except you. Unfortunately, statistics show that many Americans are not either saving at all or not saving enough for their retirement years. This is an issue that should not be taken lightly.
As people progressively live longer, this is going to require more money at retirement. The requirement for a longer period of income will also impact the ability to retire early, being able to stop working due to a health condition or keep the same standard of living. Social Security alone will not be the answer to completely solve retirement saving problems. Furthermore, it should not be the only retirement savings. It will not be enough.
Saving for retirement should be at the top of your financial plan. It does not have to be the only goal financially, but it should be an important one. Additionally, saving for retirement should not be a challenge. Saving early and as often as possible is the key. It does not have to be an amount that limits life until retirement. Just a little here and there adds up over time.
