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10 reasons to save now, so you can retire well later

Retirement will come, the question is will you be ready? The choices you make about your contributions and investments are up to you. Here is why it is essential to jump start your savings so you can retire well.

1. Saving for retirement is up to you. Gone are the days of working for one company and retiring with a gold watch and a pension. Today, it is up to us to start saving as early as we can so we can retire. With Social Security and benefits shrinking while inflation and health care costs keep rising it is essential to have a plan and save even just a little every month – so you can take advantage of any employer retirement savings based match and compounding interest.

2. Social Security is only part of the equation. “In 2020, the average monthly Social Security benefit check is $1,503. That includes the 1.6% cost-of-living adjustment that takes effect this year. Prior to that raise, the average monthly benefit was $1,479.”¹ “The maximum possible Social Security benefit for someone who retires at full retirement age is $3,011 in 2020.” ² (and that is for consistently six-figure+ high earners for at least 30-years) so the question remains, can you live off of that amount? Your income over your working life will determine your actual amount, but for some Americans, that is all they have. Of the approximately 40% of people living on that benefit alone, they will likely face downward mobility in retirement – a reality more older people face.³ As you can see, it’s vital to have multiple streams of income including savings, retirement and Social Security to live well in retirement.

3. Do you know how much you’ll need in retirement? Most don’t. As of 2020, “only 48% of workers say they've tried to calculate how much they should save, according to a new report from the Employee Benefit Research Institute (EBRI), even though the survey also found that those who do calculate their savings goals are more confident in their retirement.” 4 Taking the time now to assess how much money you’ll need when you retire – will set you up for success. When you have a larger goal, it may be easier to stay on track. 4

4. Just know, you’ll probably need more than you think. Social Security adjusts for inflation, but other savings are fixed. This means, you’ll have to plan for increased costs in retirement and likely need more. Although it is never too late to start saving for retirement, it’s essential to get going. Even if you have some savings, you may want to catch up. Let’s say you are 40 years old earning $55,000 a year and you haven’t begun to save for retirement yet. Here is what you’ll need to save if you want the recommended 70% of your salary for expenses when you retire at age 65:

40 year old earning $55,000

Need to save 15% Gross = $8,250 or $688 a month.

Investment assumes an average 10% earning over 25 years

Potential retirement savings in 25 years = $819,407.60

This is a hypothetical example only. It does not represent any specific investment(s) or fee(s) and is not guaranteed. Actual results may vary.

The good news if you are in your 40s and just getting started, you can take advantage as you may be entering your peak earning years. Remember, after age 50 you can save even more with catch-up contributions.

5. We are saving less. As a nation, we aren’t saving enough. “The U.S. personal savings rate, which is the percentage of people’s income remaining each month after taxes and spending, skyrocketed to a record 32.2% in April 2020, up from 12.7% in March, according to the U.S. Bureau of Economic Analysis.” 5 These numbers may have more to do with the pandemic and may not last. On average however, “over the last 10 years it has hovered in the 6-8% range.”5 For some Americans, savings is not even an option. Saving less over time can mean having to work longer or for others, not retiring at all. How much are you saving?

6. Working well into retirement may not work. Working after retirement because you want to can be a rewarding way to stay engaged and earn extra income. Working because you have to - may not be a safe bet. Counting on being able to work in retirement could prove unwise. While many people plan to work in retirement, unexpected health issues, disabilities, layoffs, and ageism are real. 6 According to the Bureau of Labor Statistics, for people 65-years and over unemployment is hovering at about 20%.6

7. Heading off the healthcare hurdle. Today, between the overall trends of fewer benefits offered to employees, the absence of emergency savings for most Americans and rising medical costs – there is a chasm for many Americans hoping to retire. There are gaps in insurance that can wreak havoc on retiree income. “Retiree confidence is down from 2019, especially when it comes to covering medical expenses or having their money last their entire life.”7 Planning for this eventuality will ease your time when it’s time to retire.

    

    

 

7

(EBRI Retirement Confidence, 2020)

 

8. Factoring in long-term care (LTC). One cannot predict if you’ll need a nursing home in the future, but know this: Medicare and private health care do not cover the expansive costs. Medicaid can cover the costs of a semi-private room but only if you have little to no money. “The average cost for a semi-private nursing home room in 2018 is $88,348.”8 And for the average American, most are not confident about having enough money to pay for LTC. Talk with a financial professional to learn about LTC insurance coverage available to you or your loved ones.

   

7

(EBRI Retirement Confidence, 2020)

 

9. Most retirees spend more than they think. One of the best things about retirement is potentially having more free time. Although some of your costs may go down such as former work related travel and expenses, others will go up such as travel and health costs. For some retirees, more free time also equates to more time to spend. “About one in three retirees spend more than they expected they would when they first retired, according to the Employee Benefit Research Institute (EBRI) 2020 Retirement Confidence Survey. One in 10 said they were spending much more than they'd anticipated.”9 As a rule of thumb, it’s a good idea to plan to have at least 70% of your pre-retirement income to cover expenses in retirement and include more costs than expected, so you can save accordingly.

10. Time is money. Put time on your side, Investing over a longer period of time in a tax-deferred account allows you to take advantage of compounding, meaning any earnings on contributions go back into your account without being taxed and can generate its own earnings. It’s never too late to start saving for retirement, just be sure you have a financial plan – so you can live well and retire well.

 

Will you be ready?

Remember it’s your retirement, be generous.

 

 

Sources: 
1 Motley Fool, Maurie Backman, January 2020, last accessed, September 9, 2020, https://www.fool.com/retirement/2020/01/03/this-is-the-average-social-se....” In 2020, the average monthly Social Security benefit check is $1,503. That includes the 1.6% cost-of-living adjustment that takes effect this year. Prior to that raise, the average monthly benefit was $1,479.¹”

2 401k Specialist, Brian Anderson, January 2020, last accessed September 9, 2020; https://401kspecialistmag.com/20-social-security-facts-for-2020/, “The maximum possible Social Security benefit for someone who retires at full retirement age is $3,011 in 2020”

3 Forbes, Is it possible to live on Social Security alone? , Teresa Ghilarducci, August 21, 2019, last accessed, September 9, 2020; https://www.forbes.com/sites/teresaghilarducci/2019/08/21/is-it-possible...

4 Motley Fool, Only 48 of Americans have taken this crucial planning step,   Katie Brockman, May 2020, last accessed September 2020 https://www.fool.com/retirement/2020/05/01/only-48-of-americans-have-tak... “only 48% of workers say they've tried to calculate how much they should save, according to a new report from the Employee Benefit Research Institute (EBRI), even though the survey also found that those who do calculate their savings goals are more confident in their retirement.”

5 Next Advisor, Alex Gailey, July 2020, last accessed September 10, 2020, https://time.com/nextadvisor/banking/savings/us-saving-rate-soaring/, “the U.S. personal saving rate, which is the percentage of people’s income remaining each month after taxes and spending, skyrocketed to a record 32.2% in April 2020, up from 12.7% in March, according to the U.S. Bureau of Economic Analysis.” “Over the last 10 years it has hovered in the 6-8% range.”

6 Business Insider, Liz Knueven, Working in retirement doesn't always work, say unemployed retirees who planned on it; last accessed 091120, https://www.businessinsider.com/personal-finance/working-in-retirement-d...

7 2019 EBRI Retirement Confidence https://www.ebri.org/docs/default-source/rcs/2020-rcs/2020-rcs-summary-r... slide 22, “Retiree confidence is down from 2019, especially when it comes to covering medical expenses or having their money last their entire life.” Statistics slide 22: 
  
8 Association for long term care planning, article on cost of LTC; last accessed September 14, 2020, https://www.altcp.org/long-term-care/long-term-care-cost/;. “The average cost for a semi-private nursing home room in 2018 is $88,348.”

9 Motley Fool, 34% of Retirees Spend More Than They Budgeted, a Survey Says, Kaley Hagen, May 21, 2020, last accessed September 14, 2020, https://www.fool.com/retirement/2020/05/21/34-of-retirees-spend-more-tha...
“About one in three retirees spend more than they expected they would when they first retired, according to the Employee Benefit Research Institute (EBRI) 2020 Retirement Confidence Survey. One in 10 said they were spending much more than they'd anticipated.” 
 


This material is provided by Voya for general and educational purposes only; it is not intended to provide legal, tax, or investment advice. All investments are subject to risk. Please consult an independent tax, legal, or financial professional for specific advice about your individual situation.
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