Procrastination can be as simple as waiting until the last minute to buy Christmas presents or preparing your tax return so you can deposit it into a mail receptacle at midnight on April 15. There may be benefits to waiting for last-minute sports tickets or 11th-hour holiday bargains. But when it comes to retirement savings? Bad idea!
More than half of middle-class Americans say they plan to save more for retirement “later” to make up for not saving enough now, according to a new Wells Fargo survey. Worse, many aren’t saving at all. 34 percent of the 1,001 adults surveyed aren’t currently setting money aside for retirement, and 20 percent have no retirement savings.
The median balance among savers is $20,000, down from $25,000 last year. “That’s a big problem,” said Joe Ready, director of institutional retirement and trust for Wells Fargo. “You’re already not saving enough, so you’re kicking this empty can down the road.”
Postponements can make a big difference in your final account balance. By Ready’s calculations, a 25-year-old who saves $100 per month until he retires at 65, with a 6.5 percent annual return, would have accumulated more than $225,000. Wait until age 40 to start those contributions, and the balance would be a much slimmer $75,000.
Retirement saving is hard – get over it!
Putting aside a bit of income each paycheck, when you’d rather be spending it on a fun, live-in-the-moment opportunity, takes effort. Are you a consumer who feels you have no wiggle room in your budget, that is you can’t imagine where you’d find an extra penny to set aside for retirement? Well, then it’s pretty simple, you need to increase your income or decrease your expenses and pay attention to your cash flow. Your retirement depends on it.
Even small amounts can add up over years of compounding—especially with advantages like a 401(k) employer match. Don’t let those opportunities pass you by. There are always ways you can trim a budget to increase the availability of funds for savings. Maybe it’s a cup of coffee once or twice a week, or one meal out less per month, or spa treatments only quarterly instead of monthly.
Many consumers use the excuse, “kids are expensive,” I’ll start saving once the kids are out of college. That will be too late! Later contributions have less time to grow, meaning you’ll need to contribute more to have the same ending balance as if you’d started today.
Make a plan.
It can help to have a written plan, and certainly a budget. If you have a budget and stick to it (that’s the key – if you don’t stick to it, a budget isn’t worth the paper it’s printed on)! If you need help in this regard, find a financial planner that is experienced in taking expenses and income and creating a happy ending. Do it now!
In generations past, retirees were well taken care of by employer benefit plans together with social security. Because these programs were compromised by longevity, misuse, or poor management, current baby boomers and later generations are facing the fallout.
Here are some suggestions for you in designing your own retirement plan. Don’t procrastinate on designing your plan! Being informed and gathering information is something you should not put off.
- What assets do you have available? What products do you have to supplement Social Security? With the help of your financial advisor, you may want to consider allocating your assets not just among securities and fixed income instruments, but also among different types of products, such as annuities and life insurance. If your retirement savings is falling short, consider strongly the possibilities of developing another income stream to help fund your retirement — such as working part-time, earning money online, or launching your own online business.
- Plan to live a long time past retirement! Gone are the days when you retire and then you die. Nowadays, you retire so that you can live! For instance, a couple aged 65 has a 70 percent chance that at least one of them will live to 85 – which can mean providing for 20 years or more of income once you qualify for Social Security benefits. Remember, Social Security is not intended to be a retiree’s sole form of income.
- Watch out for rising health care expenses! Chronic conditions are likely to set in the longer you live, such as diabetes, arthritis and/or heart disease, according to the Centers for Disease Control and Prevention. While being active and health conscious in diet and exercise can benefit you, be sure to be setting aside funds because health care, insurance, and medications are expensive.
- Plan for long-term care assistance. With a longer life comes the greater likelihood of needing assisted living or long-term care. For a couple, this kind of care can be costly and is important to consider when developing a long-term care strategy. Medicare pays for acute care, not long-term residency. Medicaid pays for long-term care, but requires that you “spend down” your assets before coverage kicks in. Individuals who delay buying long-term coverage may be considered high risk and may be denied coverage or charged higher premiums.
- Understand your Social Security benefits. Ask your financial advisor to explain to you the options available to you. The age in which you elect to receive Social Security benefits may be a very important factor in your retirement plan. Delaying benefits as long as you can will increase the monthly amount you receive. Don’t forget your spousal benefits and how they may factor into your retirement. Once you reach full retirement age, you may claim either your own benefit or a derivative (up to 50 percent) of your spouse’s benefit – whichever is higher. When it comes to Social Security benefits for spouses, the determining factors are the length of marriage, work history and the age of both spouses.
Procrastination is a trap we all fall into, probably on a daily basis. We are always putting off something to do something else. Realizing the danger of procrastinating on protecting yourself financially for retirement is a step forward.
This article is for everyone from age 20 and beyond. So, pass on this wisdom to your children, and grandchildren. Start planning for retirement savings now, so you don’t run out of money later.
If you have any helpful ideas for retirement saving, please share them in the comments below. Your questions are welcome as well, and I’ll try to respond promptly.