The whole dynamic of retirement has changed over the years. Back in the day, you got hired, stayed with the same employer for 40 years, and got a gold watch and a nice pension as you were shown the door. Today, everything is different.
Work has changed. Employment options have changed. Saving and investing has changed (when Dad started work, there was no such thing as an IRA). If you don’t plan ahead, your retirement may not be as comfortable as your parents’ Golden Years.
We’re living longer. That’s a good thing, thanks to an improved understanding of good health. Medical treatment has improved so much that people can live with chronic illnesses like diabetes and heart disease for many years, and can survive cancers that were once considered fatal. The general public now realizes the danger of smoking, and older individuals are encouraged to stay active and fit instead of retiring to their rocking chair.
Because of better health, it’s not unusual to enjoy a 20- or 30-year retirement these days, so you should take into account that the money you put away for retirement can be enjoyed for decades – as long as you don’t run out of money.
If you don’t have a long-term plan and a long-time horizon before your retirement, it’s time to talk to an expert about playing catch-up on your nest egg.
We don’t have control of the economy. In retirement, it’s important to keep what we’ve invested in the bank for as long as possible. However, markets go up, markets go down. Bond rates rise and fall, too.
When we’re young, we can push the envelope a little and take a crack at some riskier potential money-makers. However, once retirement is just around the corner, keeping the nest egg intact becomes important because we don’t have decades to recover from a drop in the market.
The answer? Target your investments to your age. Riskier stocks usually deliver greater rewards. Safe and secure stocks, bonds, mutual funds, and other investment vehicles may not deliver the returns of high-flyers, but in retirement you need to keep your nest egg safe.
It’s up to you to prepare for a bright retirement. These days, you can’t rely on your employer to take care of your future. In today’s economy, taking care of the future is your job and you have plenty of tools to do it.
Set up an employee-funded individualretirement account (IRA), simplified employee pension plan (SEP), Roth IRA, 401(k) plan sponsored by an employer, or some other savings instrument.
Our parents never worried about Social Security. It was a given that those monthly checks would be sent out to retirees on time and in full. Today, many people believe that Social Security is underfunded. Some experts at the Social Security Administration calculate that the system’s cash reserves will be depleted by 2034.*
Don’t count on anyone, or any government agency, to provide a monthly stipend. It may not be enough to cover basic expenses, if it’s there at all – something our parents never worried about.
Bond rates are low. Traditionally, retirees prefer to invest in bonds because they’re less risky than stocks in most cases. However, interest rates are at historic lows. That’s great if you’re searching for a mortgage, but not so good if you rely on interest from bonds to pay the bills. Once again, talk to a banker to find safer ways to put your money to work for you, earning more while taking on little additional risk.
We owe more. We didn’t grow up during the Great Depression of the 1930s. We grew up in the age of credit cards, ATMs, and easy money from lenders. So, as U.S. seniors move into retirement, we may carry a heavier debt load than our parents did. If you’re still carrying a big mortgage on the family home, you may owe a lot.
More seniors are single. With divorce rates between 40% and 50%, a lot of us enter retirement as singles. That can stress even a well-developed retirement plan. For married people, life insurance can help the surviving spouse make ends meet, so make sure you have enough coverage to help offset the loss of an income if your partner passes away.
Like it or not, we have to work longer. A lot of us enjoy working. It gives purpose to life and we’re not watching TV re-runs at 2:00 in the afternoon. Working engages us. We interact with other people, enjoy their company, and make friends. So, if you retired but you don’t feel fulfilled, get a part-time job, volunteer your time and experience, and design a retirement that works for you, not the other way around.
Retirement has changed because our lives have changed. And we can expect more change in the future, some good, some not. Either way, the time to prepare is now.
Even if retirement is on the distant horizon, start preparing for it today. Take control of the future starting with that next paycheck.
The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice.
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