Saving for retirement is not mandatory. At least, in most areas it is not. That means companies are not obligated to provide their workers with a retirement plan. If the worker is living from paycheck to paycheck, it is most likely that they will not save for retirement. This is especially true if they have a couple of debts. It is very hard to save for retirement when you are drowning in debt. You can expect that their retirement savings will be at the bottom of their list of priorities.
Of course, there is no excuse when it comes to saving for your future. You need to save for retirement. The consequence is either living in extreme poverty, relying on your kids for financial aid or working until you drop. None of these options are appealing.
According to CheatSheet.com, more than 50% of Americans have less than $10,000 saved for their retirement. This was according to the survey done by Go Banking Rates website. To make it even more alarming, one out of three Americans have nothing saved. This is a serious concern because retired individuals, although their expenses will admittedly be smaller and their financial responsibilities lesser, still need to have an adequate source of income. Obviously, when you are old and gray, you can no longer work the way you used to. If an illness strikes because of your deteriorating body, how can you pay for the medical treatments and professional help that you will need to get better?
Why forcing Americans to save for retirement is a good idea
This is probably why lawmakers in California are pushing to make this mandatory in their state. They want to be sure that anyone working for a company with at least 5 workers should be saving for retirement. According to the article published on MoneyNing.com, if the company does not have their own retirement program, they should at least enroll their employees in the Secure Choice program of the state.
The retirement program is automatic for the employee. Of course, that would mean their income will be lower because a portion of it will go to their retirement plan. The state will allow employees to opt out of the retirement plan. But with this move, California lawmakers are hoping that more people will grab this opportunity to save for their future.
The article revealed that the mandatory retirement plan would like to accomplish two things.
It gives them the option to save. Most of the time, workers who are not offered a retirement plan will not ask for it. Either that or they will not take the extra effort to voluntarily set up a plan for their retirement. If it becomes mandatory, then this will make saving for retirement more of a necessity for them. The importance will be emphasized since the state went out of its way to make it mandatory. If the enrollment is automatic, some people could just leave it at that and start saving for retirement.
It automates the procedure. The other thing that this law would like to do is to make retirement saving easier and effortless. We all want a good retirement. However, not everyone is given the right circumstances that will make the savings easy. Like we said, if a worker is living from paycheck to paycheck, taking out a couple of hundred to save for retirement is a big thing. It might end up compromising what could have been used for a basic necessity. Of course, if it is automated, saving for your retirement fund may not be as painful as you think. When the savings is taken before you see your paycheck, you will not really miss it. Adjusting your expenses may be easier and soon, the retirement money would have grown already.
The State of California has yet to confirm if this will work for them. But you have to admit that it is an interesting notion that all states should consider for their own constituents.
Why is saving for your retirement important?
We all know that saving for retirement is important However, you can bet that not everyone is aware of the details why it is so. We are just ready to accept the fact that it is considered a good financial habit.
Maybe that is why a lot of people are not saving. If you know and understand the benefits of saving for your future self, you will be motivated to make this financial move. To help change your mindset about your retirement plan, here are the different reasons why this is an important financial habit.
- You will not feel anxious about retiring. Let us begin with the obvious reason. You can now stop worrying about where you will end up or what type of life you will live when you retire. Having a retirement fund will give you the security that you will need. It will make you worry less about your finances because you know that a portion of your income is being tucked away to help make your future self well provided for.
- You will not be a financial burden to your family or government. Another reason why you need to save for your retirement is to avoid being a financial burden to anyone. You cannot be confident about your retirement if you know that you will be relying on someone else to finance your need. Although some parents ask for financial help, it is not their children’s obligation to comply. The children’s love for their elders will make them hesitant to say no – but it would be hard to sustain. And what if they get married? It would be awkward to be a financial burden. Of course, you can rely on the government but you might be competing with other beneficiaries or poverty-stricken people in your community. It is better to be assured of your retirement by saving for it yourself.
- You will find it hard to live on your Social Security alone. Let us face it, your Social Security benefits will not give you a comfortable life. Some retirees get less than $1,000 a month. Even if you can manage to fit your food expenses and a small and modest home, what will happen when you are faced with an emergency? A medical treatment might prove to be too expensive.
- You need to prepare for the high-cost medical care that your elderly self would need. Speaking of medical treatments, this is one expense that you really need to consider. According to the data gathered and published by Fidelity.com, a 65-year-old couple who expect to retire in 2016 should have $260,000 allotted for health care costs alone. Apparently, this was an increase from last year. You can bet that it will continue to increase because health care costs are rising a lot faster than you know.
If the reason will not make you realize the importance of saving for retirement, then there is probably nothing that can convince you otherwise.
Bottom line is, you need to seriously think about securing the future for yourself. Think of it as giving your future self a reward. It is a win-win situation that only you can benefit from.
Common questions about saving for retirement
Question: When should I start saving for retirement?
Answer: As early as you can. For most people, they usually wait until they get their first job. But sometimes, those with student loans choose to pay their debts first before saving aggressively. It is important that you do the math to determine the strategy that will work in your favor. Ideally, the earlier you start, the better it will be.
Question: Who should be saving for retirement?
Answer: Everyone. There is no thinking twice about that answer. We are all getting old or we could lose the person who is financially providing for us. Without a retirement fund, you might find yourself at a loss when you get older.
Question: Why is it important to save for retirement early?
Answer: The answer to that lies in the power of compound interest. When your retirement savings earn from compound interest, that means when an interest is added to it, the total amount will be used to calculate your next earning. It is like earning interest on the interest. The earlier you start saving for retirement, the longer the retirement plan will be. The length will maximize the earnings of your savings through compound interest.
Question: What options do I have when saving for retirement?
Answer: The options include saving through a 401(k), Traditional IRA, Roth IRA or building your own portfolio. Each of these will depend on your preferred withdrawal or earning capabilities. Get to know each option so you can make a smart decision when it comes to your savings.
Question: How will you know if you have enough savings for retirement?
Answer: This is hard to say. You need to consider the inflation rate and how long you think you will live in retirement. There are many calculators online that you can use. There is no one formula but these calculators should give you an idea about your retirement fund target.
