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Retirement Problems Are Not As Bad As We Thought

401k planGiving retirement tips during a shaky economy seems to have worked after all. In the past few years, we have anxiously watched as the baby boomers struggled with retirement problems as their debt payments dominated their budget. As the first of this generation retired this year, we stood by to watch how they will cope with all their financial needs despite the fragile economy and limited retirement fund.

Truth be told, a lot of our elders were resigned into thinking that they will have to retire late. Some even said that they expect to work until they drop. As unfortunate as that may seem, we admire their strength and resilience as they face their twilight years with more debt and financial difficulties than they thought they would have.

Study shows that our retirement troubles are not so bad

But towards the end of 2013, a new study is released to prove that our retirement problems were not as grave as we thought they would be. In fact, the fear that we once had for baby boomers are now unfounded as they appeared to be more prepared compared to the other generations. The study is published as a pdf file in the ICI.org and entitled “Our Strong Retirement System: An American Success Story.” It gives evidence that our society is not lost when it comes to retirement planning.

It seems that the articles released in the past few years scared pre-retirees into their senses. They obviously put their retirement fund in the forefront of their financial priorities and saved enough money in time. The report stated that by June of 2013, the total retirement fund of Americans reached $20.9 trillion. This figure did not even include the Social Security benefits that consumers will receive in retirement. When computed with the 2012 inflated dollar rate, the average American household has $167,800 in retirement – a lot higher than the $27,300 average back in 1975.

The study also revealed that retirees have a lot of resources that will help them finance their needs. These include:

  • Social Security Benefits (and supplemental security income). This provides the highest resource for retirees. It can replace 70% of the earnings of those under the lowest income level, while 47% of the second to the lowest in the income level.

  • Homeownership. This refers to the accumulated net worth acquired through the home of the retired individual.

  • Employer-sponsored retirement plans. In 2010, 81% of households headed by 55 to 64 year old workers have either private or government sponsored retirement plans.

  • IRAs

  • Other Assets

Source: http://www.ici.org/pdf/ppr_13_strong_retirement.pdf

Another reason why the study claims that the retirement problems are not as grave as before is because the access to retirement plans is made easier because it is employer sponsored. 80% of full time workers have access and are actively participating in it. For part time workers, 68% are given access to a retirement plan – with 80% of them taking advantage of it to prepare for the future. The introduction of the 401(k) is also credited to help the American worker prepare for their retirement years.

Millennials might be in more trouble with their retirement

While we rejoice in the fact that the baby boomers are doing a good job in preparing for their retirement (and the Gen X too), it seems like we need to focus on another generation – the Millennials. A study from the Fidelity Investments company revealed that they seem to be less prepared and are more susceptible to encounter retirement problems.

Based on the Fidelity report that was released on December 4, these are the retirement plan statistics of each generation.

  • Baby Boomers (1946-1964). The average consumer in this generation is 81% ready for their retirement goals. At least, they have enough to cover for the essential costs that is needed for a comfortable retirement. While this is true, they only have limited time to complete the remaining 19% that is lacking in their funds.

  • Gen X (1965-1977). This generation is 71% ready for retirement. They still have a decade or so to complete the remaining 29%. If the economy holds steady, they should be able to completely prepare for their retirement.

  • Gen Y (1978-1988). Although they are very far from retiring, they seem to be lagging behind at 62%. A lot of consumers from this generation want to retire early. At the rate that they are going, this retirement goal may not be possible. Since they still have a lot of time, they can still reach their goal – but only if they work hard and sacrifice enough for their priorities. The report mentioned that saving and investing are some of the things that they need to work on to achieve 100% attainment of their goals.

Source: http://www.fidelity.com/inside-fidelity/individual-investing/fidelity-unveils-new-retirement-preparedness-measure

The survey conducted by Fidelity indicated that the problem with consumers is that they save too little to keep up with the inflation. According to the results of their survey, 40% of the participants in the survey admitted that they only saved 6% of their money towards retirement. The ideal range is 10%-15%. The Gen Y or Millennials are the worst with 51% of them saving less than they should.

What to do to avoid falling short when you retire

While Millennials may not be feeling too confident with their future after these statistics, the good news it, time is on their side. As long as they implement the right habits and they start immediately, they can keep their retirement fund from retiring before them. Here are some of the things that you may want to do right away to avoid the common retirement problems.

  • Raise your saving contributions. Obviously, you need to increase whatever you are saving on a monthly basis. If you can put aside 6% of your income, raise it higher to 10% and stick with that. Just shave it off the top of your paycheck as soon as you get it so you won’t even miss it. You can arrange it to be deducted and saved into a separate account automatically if you like.

  • Take advantage of your employer-sponsored retirement plan. Even if you are only a part time worker, take advantage of the retirement plan that the company is offering you. Most of the time, employers match your contributions. This is free money so increase your contributions to get more of it from your employer.

  • Invest your money. One of the best ways to grow your money at the same or even higher rate than the inflation is through investments. If you do not know how this is done, do not hesitate to ask. There are many investing strategies that can suit your retirement goals best. You just have to research them. If you are cautious about the risk that you are putting your money into, you can start small. Invest what you can risk to lose and if that earns, then use the earning to invest some more. That way, if the worse case scenario does happen, you will not really lose too much of your money.

  • Decide on a back up retirement career. Although it is a long way off, you can plan what you will do while you are retired. Lounging about at home in front of the TV will only be appealing during the first few weeks or months of retirement. You can get bored and having a part time career or indulging in a hobby should keep you from feeling too much boredom. You can choose the retirement career that you will pursue so it can help increase your resources and at the same time, keep you occupied.

Regardless of your age and the generation that you come from, it is ideal that you start saving up for retirement immediately. You do not want to face the harsh realities that retirement problems can bring when you only have a few pre-retirement years. In the end, saving more than you intended is a lot better than falling short of your goals in retirement.

Start with a budget so you can identify the expenses that will have to be sacrificed to increase your savings. Here is a video from National Debt Relief to provide you with tips on how you can budget for your lifestyle.

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