The retirement planning crises in America is not talked about much because the focus in financial planning is mostly on those with planning options and higher incomes. For those without a higher income or employer-sponsored planning options, just figuring out where to begin can be overwhelming and crippling to the point one never starts. Retirement planning is the bogeyman of tomorrow and nothing gets done today.
Exactly what are we looking at when we discuss the retirement planning crises? We are talking about those who are working and have saved little or nothing for retirement, those who are in retirement who learn that they cannot live on what they saved, and those at retirement age who haven’t even tried to figure out how much they’ll need compared to what they spend and currently have on hand.
AARP recently did a survey and the results were startling. The AARP survey found that nearly half of retirees are already working or planning on returning to the workforce due to finances. That is, they need more money to live on. The survey also found that 57% of older folks plan to keep on working due to finances and delay retirement. You can read the results of the full survey here.
Click to expand AARP infographic.
Another AARP survey on labor found that 57 million Americans don’t have access to any form of retirement savings plan through work. No pension, no qualified plan, nothing! That usually means if the option is not provided, the employee does little or nothing on their own. There’s no incentive, saving is not automatic, and they are not benefitting from any form of profit sharing, or matching contributions.
Another contributing factor to the retirement crises – Baby Boomers! Yep, the folks who at this very moment should be setting sail into their Golden Years to enjoy their money and free time, are not so much setting sail. We are also learning that a fair percentage of them didn’t bother to save much for retirement. We’ve been blaming the labor shortage on lazy Millennials or those workers who feel entitled to pandemic relief (which has mostly ended or dried up), but in reality, a lot of Boomers left the workforce due to the pandemic, but were not prepared financially. Now, large numbers of Boomers are looking to keep working in some capacity out of a need for cash. A bit of a mixed situation with the Boomers that is affecting the labor market.
With labor disruptions, older folks working longer, and fallout from the pandemic, the retirement crises does seem to be worsening. Here are a few tips for that 18 to 64 age group of 57 million who have nothing via their workplace to help them save. What can they do?
First, they need to meet with a financial planner. A good assessment of where they stand, and what options they have can be invaluable. Finding out where you are will really help you get to where you want to go. You need to know your numbers!
Next, understanding monthly cash flow is key. Knowing how much you have available each month to work with is very important. Your income level, free cash flow, and tax filing status all contribute to knowing what options you can access for investments.
Figure out what investment vehicles are available to you in your specific situation. You may be able to save in a traditional IRA and take a tax deduction if your income is low enough, or you may need to save in a traditional IRA with non-deductible contributions. What about other options such as a Roth IRA? Again, depending upon personal circumstances, this could be a good option. If you have a higher income, you might be excluded from making a direct contribution to a Roth IRA for example. In this case, you might need to make a backdoor contribution.
Are you in a 1099 gig position, or do you own a small business? If so, setting up a solo 401(k), or a SEP or SIMPLE IRA may be a good option for you. With some plans, you are able to make contributions as the employer and the employee if you have your own business.
There are also taxable investment accounts (a brokerage account). You’ll need to know the minimums to start, if any, and also how much you have each month that you can invest consistently and put away for your future. What’s amazing about these accounts is that there is no maximum contribution, you get some flexibility on tax depending on how long your funds are invested, and there are no restrictions or penalties on access like with a qualified workplace plan.
Finally, attack your debt. Debt is a dream stealer. Retiring debt before you retire will help you live on less money if you have limited income streams. Reducing your debt burden is one of the greatest reliefs you can provide yourself. It improves your debt-to-income ratio in case you need to apply for credit. Reducing debt can help improve your FICO score. And, obviously, it frees up money you can use for other needs.
For the 57 million who have no access to workplace savings options, creating a secure retirement is no easy task; but, it isn’t impossible. It will take an assessment of where you stand, and knowing which options to pursue. More importantly, it will take dedication and commitment to create your own retirement plan but it can be done. The sooner you start, the better because time is a key factor in wealth growth.
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