Baby Boomers have changed the world at each milestone of their lives and retirement will follow suit. Technological advances are changing the world faster and more dramatically each year. Just a few years ago retirement planning was less of a priority because pensions combined with social security ensured financial stability for the elderly.
Today, seniors can expect to live 20 years or more in retirement, and pensions are rapidly fading as a financing option. This reality has led to a dramatic shift in financial responsibility for retirement costs. New trends are adding challenges and creating opportunity for today’s seniors.
A Longer Life. In 1970 the average 65-year-old male could expect to live 13 years in retirement. Today that number has increased to nearly 18 years. A 65-year-old woman during the same time saw an increase in life expectancy from 16.8 years to 20.2 years, per data provided by the social security administration. Increased longevity also requires additional savings to pay for the increase in longevity.
Improved health. In addition to a longer life, today’s retirees are experiencing advancements in medicine, improving their quality of life. A recent study by the Urban Institute showed a drop in poor health among seniors ages 80 and above, from 43% to 34%, a 9% improvement. Overall, Baby Boomers are experiencing improved health which reduces healthcare costs in the early years of retirement and may allow those nearing retirement age to work longer to make up for financial shortfalls.
A shift in retirement responsibility. One of the key changes to occur during Baby Boomer careers was the shift from employer-sponsored pensions to employee-funded 401Ks. This change transferred the responsibility of paying for retirement to workers, instead of the employer. Without a disciplined approach, many have found they have not saved enough to live comfortably for 20 plus years in retirement. Pensions offered guaranteed income for life, where a 401K will last only as long as the money lasts.
Consumers can take advantage of tax-preferred accounts to build retirement savings. Everyone qualifies for one or more account options:Company sponsored 401Ks, Individual IRAs, and small business retirement accounts offer tax-free growth. Some accounts also offer an initial tax deduction for contributions, where others provide tax-free withdrawals. Employers may match employee contributions which lead to faster growth of balances. However, workers must make regular contributions and build a thoughtful plan, to ensure there are enough funds available at retirement.
Remaining in the workforce longer. The days of full retirement at 65, or even early retirement, are fading fast. Many seniors are choosing to work longer, often out of necessity. Doing so reduces the number of years’ retirement funds must pay for, and increases the ability to eliminate debt and increase retirement account balances. During the time between 1994 and 2014, the number of men at retirement age who were working or looking for employment increased from 45% to 56%, according to the Bureau of Labor. For women, the number increased from 33% to 45%.
Record levels of debt. The Achilles heel of baby boomers is the debt carried into retirement. No longer are seniors paying off homes and entering retirement debt free. As a result, today’s retirees need more cash flow in retirement than previous generations. Not only are they losing the nest egg of a pension, but they are entering retirement with more reoccurring bills and fewer funds to pay for them.
During careers, families moved more, refinanced debt, and upgraded housing, resulting in remaining mortgage at retirement. Add debt from student loans, due to upgrading job skills or helping children pay for college, and seniors have more debt than any previous generation. The result is millions of retirees with mortgage payments, student loan debt, and high-interest credit card debt crippling senior budgets.
Adjusting to Today’s Trends for A Successful Retirement
The combination of living longer and lower savings has left seniors looking for last minute solutions to their financial shortfalls. Converting those neglected areas into a successful retirement will take discipline and sacrifices.
Eight Steps to Save Your Retirement Include:
- Honestly review your financial picture. Collect all the bills and get an accurate understanding of your debt, assets, savings, and income. It is impossible to have a workable plan until you identify the starting point.
- Build savings. Once you know where you are, and determined where you need to be, add to savings immediately. You need an emergency fund and retirement fund in place. Instead of focusing on the giant number, focus on what you can contribute today and built it from there. Utilize the company 401K or add to an IRA, often you can do both. Set up automatic contributions and push yourself to contribute as much as possible each pay day.
- Eliminate debt. Debt reduction is as important as increased savings. Every account you pay off is one less you must pay in retirement. If you have problems with self-control, cut up the cards. If current payments are overwhelming, get help from a professional debt counselor. High-interest debt can cripple a retirement budget.
- Refinance or downsize if needed. Refinancing your home may lower the interest, pay the house off faster, or lower monthly payments in retirement. Downsizing by moving to a smaller home will reduce the mortgage payments, along with utilities and home maintenance. If there is enough equity in your current home, you may find you can live mortgage free, on a smaller scale.
- Make additional payments. As you focus on building your savings and reducing debt, take extra funds you receive, and put it towards your goals. Sell what you do not use, and add the extra to savings or debt reduction, instead of spending it.
- Downsize your lifestyle. Learn to live on less. If you don’t decrease debt and increase savings now, a reduction in your standard of living is inevitable. Reducing your cost of living now may enable you to achieve a more comfortable retirement. It might also be necessary to adjust your expectations of what retirement means and what you can accomplish when you stop working. You may need to work part-time, instead of participating in expensive hobbies. Multi-generational living is becoming more common, to assist with retirement shortfalls. Adjusting expectations can leave you with a full life, even if it is different than you anticipated.
- Control spending. Find ways to do what vyou love for less. Perhaps weekend getaways will be the norm, instead of extended vacations. Delay or eliminate large purchases. Instead of replacing an older vehicle, go to one family car for transportation. Cook more at home and utilize free services like local parks and libraries. These strategies can maintain your quality of life while lowering costs.
- Learn the basics of investing. Contributions and account growth determine ending account balancves. Gains are dependent on the performance of your investment choices. Study investment strategies and learn how the products work. Get help from a professional, if needed, to avoid costly investment mistakes.
If you are burdened with high amounts of credit card debt and are struggling to make your payments, or you’re just not seeing your balances go down, call Timberline Financial today for a FREE financial analysis. Our team of highly skilled professionals will evaluate your current situation to see if you may qualify for one of our debt relief programs. You don’t have to struggle with high interest credit card debt any longer. Call (855) 250-8329 or get in touch with us by sending a message through our website.