When something intimidates you, the natural response is to ignore it. But your financial health is such an important thing to think about because we all have a goal to retire at some point and enjoy the fruits of our labor. And while there are programs like social security that should enable us to leave the workforce and retire, there are varying levels of confidence that social security will remain funded long enough to provide retirement income for Americans, especially those in my generation and younger.
According to this article from CNN, the trusts that funds social security income will be depleted by 2034. That does not mean that social security will go away in 2034, but social security benefits will be cut by about 20% as the payments to beneficiaries will need to be funded by incoming tax money (right now there are assets in a trust that earn income to supplement the amount of social security taxes that the government collects). I will be 53 years old in 2034. I won't even be at the age to receive social security benefits. So if the benefits are being cut by 20% at that point, how much further will they be cut by the time I start to receive social security in 2048? [full retirement age is 67 for those born after 1960 - you can start to collect at 62 but the amount of your benefit is reduced by 30% if you start to collect at age 62.]
I recently received an article at work (that I can't share because it requires a paid subscription, but this Huffington Post article from last summer says that same thing) that said nearly half of baby boomers have no money saved for retirement and intend to rely on social security income in their retirement years. Granted, the baby boomers that are entering their retirement years likely never feared that social security income wouldn't be around to provide retirement income. But in my opinion, my generation - generation X - and millennials can not assume that we will receive social security benefits when we retire.
Maybe there will be some sort of large scale reform that will increase the likelihood that we'll receive sufficient social security income, but that's a big maybe, in my opinion. I know this is probably scary for many to read and think about, but it's something we need to be aware of and plan for. Granted, if you happen to work for a company or industry that provides a pension then this is less of a concern for you. But nonetheless, ignoring thoughts and conversations about how to plan for retirement is akin to never going to the doctor because you don't want to know what the state of your health is. Because just like your physical health, your financial health is going to matter in the long run.
Again, I want to stress that I understand that thinking about this might make some of you really uncomfortable and quite anxious. But isn't it better to think about it and do something about it now when you potentially have 30+ years to put a plan into action versus thinking about it when you are approaching your retirement? The good news is that time is literally money when it comes to investing (a topic I'll be touching on in my next post in this series). Yes, there will be times when your investments decline in value, but over time, those investments will grow.
This first post in my "Finance Friday" post series is more of an 'ideas' post that is meant to get you thinking about your retirement. But I do want to leave you with some 'actions' to take.
Finance Friday Actions
1. Consider working with a financial advisor - I personally do not work with a financial advisor because between Phil and I, we have the knowledge and resources to manage our assets and prepare for retirement. But I would say we are the exception, not the norm. If thoughts of retirement freak you out and make your stomach hurt, I think a great first step is to meet with a financial advisor. They will have the tools and resources to talk about preparing for retirement and if they are good at their job, they will do so in a manner that will make sense/not intimidate you. If you have 401k, IRA, and other investment accounts, they should be able to run an analysis on how much income those retirement accounts will provide. They can factor in social security income, or they can exclude it to give you a 'worst case scenario'. Your company may even provide a financial advisor as part of their benefit package. If you aren't sure, just ask your HR department.
2. Set your 401k contribution to your company's matching rate, or greater - Most companies provide a 401k match as part of their benefit package. It's usually in the range of 3% to 6%. At a minimum, you should set your contribution to the % that your company matches - otherwise you are leaving free money on the table.
This post is already super lengthy so I will stop here. Since this is a new post series for me, please let me know if you have any feedback or if there are topics you'd like me to discuss in the future. My goal is to post something at least once a month on this topic. And if I ever post something that you don't understand, you can always email me at lisasyarns at gmail dot com. I know this is cheesy, but knowledge is power, so the more you can educate yourself on finances and preparing for retirement, the better. My goal is to empower everyone to take more ownership in making sure their financial health is in tip top shape!
Finance Friday Question: Have you given much thought to saving for retirement?
Disclaimer: The thoughts in this post are my own thoughts and are not meant to be taken as investment advice. I have no fiduciary responsibility to anyone that reads this post. Additionally, my comments are US-centric; retirement benefits vary from country to country.