Saving for retirement has become a daunting task for some Americans planning to retire in the next few years. In a recent poll published on CNBC, more than 41% of Americans say it will take “a miracle” for them to be financially secure when they retire.
While retirement prospects have changed in recent years, particularly in America where a portion of retirees and seniors will not fully retire as some seek to return to the workforce due to financial hardship or by choice .
Between January 2020 and October 2021, more than 3.3 million Americans withdrew a 7% increase over the expected forecast. And while the COVID-19 pandemic has not only caused employees to leave the labor market permanently en massea large number of people are also retiring much earlier than expected.
Although few of us plan to retire for a few decades, living on Social Security or retirement benefits can only help to a certain extent. A diverse set of annuities and investments are among the most popular strategies future retirees are considering.
But with such a variety of investment and savings options, what are some of the things you should know and do to secure your retirement savings.
According to the Center for Disease Control and Prevention, Americans aged 65 and older live about 6 years longer than previous generations in the 1950s.
So while this means you’ll have more time to relax and enjoy your golden years, it also means setting 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 your pension, Social Security, or retirement savings. While that may be the case for a minority of people, it reveals that some Americans still haven’t put stress on their financial future when they reach retirement age.
To make things easier, some retirees are willing to invest in various stocks and portfolios, or perhaps take out annuities that can provide monthly payments for the rest of their lives.
But these investment and savings products aren’t as far-fetched as they used to be. Companies and platforms such as Due have completely changed the game, making it easier and safer for anyone to invest in their retirement.
Using a platform like Due means 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 plan strategically, the better payouts you will receive.
While annuities may not have been hugely popular in recent years, baby boomers and now millennials understand how they can grow their wealth using annuity products.
Start an investment portfolio
Nowadays, it has become incredibly easy to start an investment portfolio, as online platforms and financial institutions offer information and support.
Having an investment portfolio doesn’t necessarily mean you’ll be sitting at a computer trading stocks all day. For some it just means that 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 actively trade stocks and shares on the stock exchange?
- How much money are you willing to bet on your investment portfolio?
- Will you use the money you are comfortable losing?
- Is there a financial broker or an investor who will assist you?
- How long will you leave your investments?
Starting an investment portfolio can be a lucrative retirement, especially if you’re someone with the knowledge and mindset to trade the stock market, or perhaps pick stocks that don’t require your constant attention every days.
Minimize retirement fund withdrawals
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 survive the harsh lockdown and quarantine restrictions, the new legislation was only allowed to people aged 59½ and under.
When withdrawing retirement funds, some institutions impose a penalty or additional tax on early withdrawals. People who withdraw early from their retirement funds may incur a 20% tax rate on withdrawals to cover taxes and other penalties.
Generally speaking, the IRS withholds about 20% of the initial funds if individuals withdraw from their 401(k) to reduce their ordinary income.
This would mean that you would end up with 20% less of the money you withdrew, making it more expensive and difficult to save for the future.
On the bright side, there is a section that allows withdrawals without penalty under special conditions. These may include and may be limited to medical expenses, disability, child support, support and active military service and death.
Many fund managers and retirement planners will typically list penalty fees and taxes associated with early withdrawals. Overall, it is considered expensive to dive into retirement funds earlier than expected, except in an emergency.
Consider a target date fund
Target date funds have always been seen as a way for people to save a retirement fund. These funds are planned around a specific age or retirement date, which allows ample time to invest in different securities and bond products.
Some of these funds have been designed to be approximately 90% equities and 10% bonds, and the fund allocation can be changed between different securities and bond-related products.
A few considerations:
- Target date funds are primarily positioned as a single fund solution.
- Having a single target date fund may not be the guideline needed to build a larger retirement fund.
- These funds can invest in foreign and domestic stocks, which can hamper the success rate of growth.
- The asset allocation is not changed over the years, which might not be as lucrative as one might expect.
Although these funds provide some financial safety net, they should not be viewed as the sole income or contributor to a retirement fund. Additionally, many experts suggest that retirees should instead have a multi-contributory income stream, whether it’s mutual funds, stocks, bonds or annuities.
Set realistic goals
The main goal for many people when planning their retirement is to have sufficient financial security when they leave the workforce for good. Traditionally, Americans simply set aside a lump sum of money each month that would earn interest over the years.
But with the cost of living and health care rising, and inflation skyrocketing in just one year, simple savings plans with banks and other financial institutions are simply not enough.
Planning for the future means you consider a variety of different factors that will help make the end goal a little clearer. Overall, when planning these types of financial endeavors, make sure you have a clear idea of what you want and how much you are willing to contribute.
Retirement funds are not just about putting money aside for bad weather. Be aware to think about the following:
- What is the current timeframe I have to save for my retirement?
- How much of my net income or salary will I be able to spend on retirement?
- Can I use allocated funds to buy stocks, bonds and other investments?
- Will I be able to have enough savings for retirement to ensure a comfortable lifestyle?
- Are there mutual or dated retirement funds in which I can invest?
- Am I able to risk some of my current salary or savings to help grow my financial endeavors?
These and other questions all play an important role in achieving your financial retirement goals. Consider your situation and how you can make your current financial situation work for you and with you.
More and more Americans are struggling to save enough money to help them be financially secure when they retire. Being informed enough to know exactly when and where to invest or buy certain products is now more important than ever.
Retirement should be a time when you can enjoy your life, without having to worry about your finances and ensuring that your savings will outlive you, not the other way around. By bringing together a host of different products and services, it’s now much easier to find the right retirement fund plan that can work for your financial situation now and in the future.
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