How to Prepare for Retirement
Even though Americans are working longer, they are still nervous about their financial wellness in retirement.
The baby boomers, until recently the largest generation in the U.S., are now entering retirement en masse. Still, the point at which they decide to quit working is much later than it was 20 or even 10 years ago. According to a Gallup poll from April 2015, 37 percent of nonretired Americans expect to quit working after age 65. In 2009, just 31 percent said the same, while in 1995, only 14 percent said they would work beyond 65 years of age.
"More Americans plan on working longer compared to just a few years ago."
Why the long wait? According to Gallup and others, more workers approaching retirement are concerned about their ability to save after this reliable source of income is gone. Gallup went on to cite other studies in their survey findings. A Wells Fargo poll done in conjunction with Gallup found that only 28 percent of nonretired investors considered themselves "very confident" in their post-work savings. In addition, 36 percent approaching retirement said they would be heavily dependent on Social Security, a 10 percent increase from the previous decade.
These data show that even though Americans are working longer, they are still nervous about their financial wellness in retirement. While the strategy to start saving early and stay the course throughout one's working life has always been the ideal plan, experience shows that things don't always work out this way. That's why some workers approaching retirement may actually need to rethink their savings strategy to get where they need to be. Fortunately, this isn't as impossible as it may seem.
Personal finance website The Motley Fool pointed out that it's possible, and probably advantageous , to step up retirement saving as much as possible as your personal deadline looms. Writer Maurie Backman pointed out that it's common for the nearly retired to consider any additional saving almost pointless late in the game, since interest won't allow for much appreciation in a few short years. However, in retirement, the idea is to keep stretching your dollar. That means even an extra $100 per month could make dealing with expenses much more manageable.
Anyone who is able should be taking advantage of retirement savings plans like 401(k) funds or IRAs, Backman noted. But those over 50 should especially look to these options for smart retirement saving. If their employer offers a match on 401(k) contributions, employees should utilize this to the fullest extent. By investing money into a traditional 401(k) or IRA, savers can utilize the tax advantages of these accounts when it's time to retire. That's not to mention the convenience of having another account in which to place retirement funds. This separation should make it harder to withdraw funds sporadically, and thus set you up for a sizeable cushion of cash to use in retirement.
More ways to save
Saving money doesn't always have to mean stashing it away for as long as possible. This is just the end goal of saving, but there are many ways to go about it. Go Banking Rates found some useful tips for cutting back on expenses prior to retirement to get your finances, as well as your life, in good shape.
- Downsizing: Americans have a love of stuff, and it's impacting many facets of our lives. For example, a recent study from the U.S. Department of Energy found that 25 percent of Americans with two-car garages didn't have room to fit two cars in those garages, because they were already packed to the brim with junk. Many of us could do with less, and it often will result in big savings. Have a garage sale, work to reduce clutter or even sell your big house for a smaller one. These are all ways downsizing could maximize savings.
- Pay down debt: Thanks to interest rates, having debt is costly. Before saying goodbye to coworkers, be sure to close out as much debt as possible. Those interest payments will only make a comfortable retirement harder to maintain.
- Stay active: A study from HVS Financial estimated that the average 65-year-old retired couple can expect to spend almost $7,000 per year on medical expenses. This figure may only rise with age. It's vitally important to stay healthy and active to stave off some of these costs.
For more on how to save and spend in retirement, speak to a professional at your local Vectra Bank.