Saving for retirement has become a daunting task for some Americans who are looking to retire in the next few years. In a recent survey published on CNBC, more than 41% of Americans claim that it will “take a miracle” for them to be financially secure by the time they retire.
While the outlook of retirement has changed in recent years, especially in America where a portion of retirees and seniors will not be fully retired, as some look to return to the workforce because of financial hardships, or out of choice.
Between January 2020 and October 2021, more than 3.3 million Americans retired a 7% increase from expected predictions. And while the COVID-19 pandemic has not only driven employees to permanently quit the workforce en masse, a large demographic of people are also retiring a lot earlier than what they originally planned.
While not many of us will be looking to retire for another few decades, living off Social Security or pension benefits can only help to a certain degree. A diverse set of annuities and investments are some of the most popular strategies soon-to-be retirees are looking into.
But with such a broad variety of investment and saving options, what are some of the things you should know and do to secure your retirement savings.
Americans aged 65 years and older are living about 6 years longer than previous generations during the 1950s according to the Center for Disease Control and Prevention.
So while this means you’ll have more time to relax and enjoy your golden years, it also means you need to set out realistic goals that will help secure your retirement savings.
Consider Annuity-based Products
One of the biggest misconceptions many people have is that retirement simply means living off of their pension, Social Security, or retirement savings. While this may be the case for a minority of people, the latter reveals that some Americans have still not placed any stress on their financial future when they reach the age of retirement.
To make things easier, some retirees are willing to invest in various stocks and portfolios, or perhaps take up annuities that can offer monthly payouts for the rest of their lives.
But these investment and saving products aren’t as far-fetched as they used to be. Companies and platforms such as Due have changed the game completely, making it easier, and more secure for any person to invest in their retirement.
Using such a platform as Due means that individuals can choose how much money they’re willing to hand over (as it requires a lump sum and monthly deductions), what their monthly installment can be, and the better you strategically plan, the better monthly payouts you’ll receive.
While annuities may have not been very popular over the last few years, baby boomers, and now millennials are understanding how they can grow their wealth with the help of annuity products.
Start an Investment Portfolio
Nowadays it’s become incredibly easy to start an investment portfolio, as online platforms and financial institutions offer insight and assistance.
Having an investment portfolio doesn’t necessarily mean you will be sitting in front of a computer trading stocks the whole day. For some, it simply means you have an investment portfolio with your bank or any type of financial provider.
There are a few things you should consider before investing:
- Will you be actively trading stocks and shares on the stock market?
- How much money are you willing to bet on your investment portfolio?
- Will you be using the money you’re comfortable with losing?
- Is there a financial broker or investor that will be assisting you?
- How long will you leave your investments for?
Starting an investment portfolio can be a lucrative retirement plant, especially if you’re someone who has the knowledge and whit to trade on the stock market, or perhaps choosing stocks that don’t require your constant attention every day.
Minimize Withdrawals from Retirement Funds
At the start of the COVID pandemic, new legislation enacted allowed people to withdraw up to $100,000 from qualified retirement funds. While this helped a majority of people outlive the harsh lockdown and quarantine restrictions, the new legislation was only allowed to individuals aged 59½ and younger.
When withdrawing from retirement funds, some institutions impose a penalty fee or additional tax on early withdrawals. Those individuals who withdraw earlier from their retirement funds may incur a 20% tax rate on withdrawals to cover taxes and other penalty fees.
Generally speaking, the IRS withholds around 20%of the initial funds if individuals withdraw from their 401(k) to subside ordinary income.
This would mean that you will end up with 20% less of the money you withdrew, making it more expensive and difficult to save up for the future.
On the bright side, there is a section that allows one to conduct penalty-free withdrawals under special conditions. These can include and may be limited to medical expenses, disability, child support, support and military active duty, and death.
Many fund managers and retirement planners will generally indicate the penalty fees and taxes connotated with early withdrawals. Overall, it’s considered costly to dive into retirement funds earlier than expected, unless when an emergency occurs.
Consider a Target Date Fund
Target Date Funds have always been considered a way for people to save up a retirement fund. These funds are planned around a specific retirement age or date, which gives one enough lead time to invest in different securities and bond products.
Some of these funds have been designed to have around 90% stocks and 10% bonds, and fund allocation can be shifted between different securities and bond-related products.
Some Considerations:
- Target date funds are mostly positioned as a single fund solution.
- Having just one target-date fund might not be the directive needed to make up a larger retirement fund.
- These funds can invest in both foreign and domestic stocks, which can hinder the growth success rate.
- Asset allocation is not changed throughout the years, which might not be as lucrative as one would expect it to be.
Although these funds provide some financial safety net, they shouldn’t be considered as the sole income or contributor to a retirement fund. Additionally, many experts suggest that retirees should rather have a multi-contributing stream of income, whether it be mutual funds, stocks, bonds, or annuities.
Set Realistic Goals
The main goal for many people when planning for retirement is to have enough financial security when they permanently leave the workforce behind. Traditionally, Americans would simply put away a lump sum of money each month that will generate interest over the years.
But with the rising cost of living and health care, and the soaring rate at which inflation has increased in just one year, simple savings plans with banks and other financial institutions are simply not enough anymore.
Planning for the future means you consider a variety of different factors which will help make the end goal seem a bit more clear. Overall, when planning these sorts of financial endeavors, be sure to have a clear picture of what you want and how much you’re willing to contribute.
Retirement funds aren’t simply about placing money on the side for a rainy day. Be aware to think of the following:
- What is the current time frame I have to save for retirement?
- How much of my income or net salary will I be able to allocate towards retirement?
- Can I use the allocated funds to buy stocks, bonds, and other investments?
- Will I be able to have enough saved up for retirement to ensure a comfortable lifestyle?
- Are there any mutual or date retirement funds that I can invest in?
- Am I in the position to risk a portion of my current salary or savings to help grow my financial endeavors?
These and other questions all play an important role in how one will achieve your financial retirement goals. Be considerate of your conditions, and how you can make your current financial situation work for you, and with you.
The Takeaway
More and more Americans are struggling to save enough money that will help them be financially secure by the time they retire. Being knowledgeable enough to know exactly when and where to invest or buy certain products is now more important than ever before.
Retirement should be a time where you can enjoy your life, without having to stress over finances and making sure your savings will outlive you, and not the other way around. Bringing together a host of different products and services now makes it a lot easier to find the right retirement fund scheme that can work for your current financial situation and that of the future.
