Are you like most Americans
Americans are having trouble financially preparing themselves for life after work. A recent Federal Reserve report found that nearly a quarter of U.S. adults have absolutely no retirement savings or pension. Even though the level of preparation increases as people get older, concern about inadequate savings is still readily apparent across all age groups, even older people in their 60s.
The data shows that 42 percent of younger people aged 18 to 29 have no retirement savings along with 26 percent of people aged between 30 and 44. As they get closer to retirement, 18 percent of those aged between 45 to 59 have a complete lack of retirement savings. When it comes to those actually ready to say goodbye to working life, 13 percent of people aged 60 and over have no financial cushion for their retirement. Only 45 percent of people aged 60 plus say their savings for retirement are on track.
One of the reasons so many young people have no retirement savings is that they are saddled with Student Loan Debt. Seven in ten graduates have Student Loans and these loans average about $35,000 per person. Paying off $35,000 on the standard repayment plan would equate to a payment of $350 per month for 10 years. This is money that could otherwise be invested in a Retirement Plan at work. If the employee is unable to contribute to their Retirement Plan, they may be missing out on free money in the form of matching employer contributions too. Over time, these circumstances can lead to substantially underfunded Retirement Accounts. For example, a 20 year-old who saves just $175/month in a Retirement Account (while their employer matches that with another $175/month) will accumulate almost $1,000,000 by the time they reach age 65 (assuming a 6% rate of return compounded daily).
Many older Americans who do not have enough saved for Retirement also have the high cost of college to blame. Many parents take out loans for their children’s College Education and/or “borrow” from their own Retirement Accounts to pay for school. Depleting Retirement Accounts and accumulating debt can cause parents to extend their working years into their 70’s and beyond.
The first step you can take to see if you are on the right path to is to create a Comprehensive Financial Plan. This will entail the creation of a Balance Sheet and should describe all income and expenses that you incur on a regular basis. The plan will also look at all of your Investments, Debt, and Taxes. Once you know where you are, you can determine where you want to be and then work to create a plan of action.