It’s no secret that Americans’ retirement security is shaky at best. But when the President is worried about our financial security, that should be a wake-up call — no matter your political affiliation.
“Too many older Americans leave the workforce without having saved enough for retirement,” Obama said during the recent White House Conference on Aging, a once-a-decade event in which experts and government officials convene to explore the challenges and opportunities facing the aging population. “There are a lot of folks out there that work really hard but at the end of the day still don’t have enough of a nest egg.”
The President is worried about your retirement security.
This shouldn’t come as a surprise, given the volume of published data that reveals troubling times ahead for Americans’ golden years. One such figure shows that more than a third of Americans haven’t saved anything for retirement. But it’s not entirely their fault. The economy and the lack of sufficient retirement savings vehicles are, in part, to blame.
“In today’s economy, preparing for retirement has gotten tougher,” Obama said, noting that many people no longer have defined benefit pension plans. “A Social Security check on its own oftentimes is not enough … [and] a lot of people don’t have any kind of retirement account at all. We’re going to have to work hard to deal with these issues.”
Keeping the Social Security program strong and protecting Americans from financial exploitation are two ways in which the government is working to do so, he said. Additionally, “we’ve got to make it easier for people to save for retirement.”
While the government does — or does not do — what it can, here are six steps you can ways you can take care of yourself for a better retirement:
1. Create an Overall Retirement Plan
There are so many pieces and parts to a secure retirement: how much you save, how you invest, when to retire, when to start Social Security, where to live, how much to spend, a plan for out of pocket medical expenses and much more.
However, planning does not need to be incredibly complicated. One of the best retirement calculators can really help you get your hands around for financial plan. The NewRetirement Retirement Calculator is one of the best tools and it can make retirement planning easy and relatively straightforward.
2. Automate Your Retirement Savings Plans
As fewer workers rely on defined benefit pensions plans, there’s been a shift in focus to defined contribution plans, such as 401(k)s.
A 401(k) is a retirement savings plan that’s sponsored by an employer and allows workers to contribute part of their paycheck before taxes are taken out. Employers often match these contributions up to a certain amount, but are not required to do so.
While they’re becoming more popular, these savings vehicles are still underutilized. In fact, roughly 30% of eligible workers do not participate in their employer’s 401(k)-type plan, according to the U.S. Department of Labor (DOL).
However, that rate could drop to less than 15% with the help of an automatic contribution arrangement, also known as automatic enrollment, the DOL reports.
Automatic enrollment is a feature in a retirement plan that allows an employer to “enroll” an eligible employee in a plan, such as a 401(k), unless the employee specifically elects otherwise.
Doing so not only increases participation in retirement plan contribution, but also significantly increases workers’ retirement savings, while simplifying the selection of investments appropriate for long-term retirement savings, according to the DOL.
3. Generate Income For Life
Guaranteed lifetime income is especially important today as Americans are living longer and worrying more about outliving their retirement savings.
Roughly 85% of financial planners’ clients are kept awake at night due to worries about outliving their savings in retirement, according to a 2013 study by investment firm Principal Financial Group. A year prior, outliving retirement savings wasn’t even among clients’ top three concerns.
But generating income to last throughout your post-career days can be daunting, and, in fact, is one of the “most critical barriers” to a secure retirement, said Robin Diamonte, chief investment officer at United Technologies Corp. (UTC), during the White House conference.
United Technologies, a Hartford, Connecticut-based aerospace and building technology company, is a firm believer in both automatic enrollment and lifetime income strategies.
To create such a strategy for its employees, UTC combines target-date mutual funds — whose investments become more conservative over time — with annuities, which provide employees the security of lifetime income.
“It becomes less risky as a person approaches retirement, but it generates a lifetime income stream for them,” Diamonte said. “It’s important for the industry to put these products in place that give people lifetime security.”
4. Save What You Can, When You Can
Every little bit helps when it comes to financial planning. Whether you’re making beaucoup bucks or living on more modest means, create a savings plan that’s appropriate for your budget.
“There are two essential ways to save,” said Jean Chatzky, the financial editor for NBC’s TODAY show and AARP personal finance ambassador, during the White House conference. “One way is to just do small chunks when you can — small consistent pieces, whether it’s $5 or $50, every little bit helps. [Secondly], if and when you get a small windfall, such as a tax refund or birthday gift, put as much away as you possibly can.”
Additionally, save early and save more, Diamonte said, noting that you should resist the temptation of cashing out your retirement accounts when you change jobs.
5. Pay Down Debt
The average person age 65 or older typically carries $9,300 on their credit cards, according to a study by national research organization Demos.
So while saving for retirement is critical, paying down debt is also an important component to ensuring you retire with a cushion.
“On one level the most important thing is to begin saving early,” said Andy Sieg, managing director and head of Global Wealth & Retirement Solutions at Merrill Lynch. “But saving comes in many different forms. … Paying down debt is the financial equivalent to saving.”
6. Maximize Social Security Benefits
At age 62, when you can begin drawing from Social Security, you can access only 75% of your benefits.
If you have reached what’s called “full” or “normal” retirement age, which is 66 for people who were born between 1943 and 1959, you can access 100% of your benefits. (If you were born in 1960 or later, your full retirement age is 67.)
For each year after that, up to age 70, your benefits increase 8%, meaning you can access 108% of your benefits at age 67, 116% at age 68, 124% at age 69 and 132% at age 70.
Thus, Social Security benefits can increase up to 32% if you wait until age 70 to start collecting them — translating to an additional $300,000 in benefits over the course of a couple’s lifetime or $100,000 during an individual’s lifetime.
“I don’t think we can put too great an emphasis on how you make the decision to take Social Security,” Chatzky said. “Three-quarters of Americans take Social Security at age 62, and by doing that they leave a ton of money on the table.”
Use a Social Security Calculator to figure out your best time to take benefits.
Get Started Today
No matter what you do to prepare for retirement, the important thing is to get started today. The easiest way to start is to try an online retirement calculator. This will give you an overview and ideas for where to focus your efforts.
