America is in the midst of a retirement crisis, and many people are in danger of not being able to live out their retirement dreams. Why? Because the road to retirement just isn’t as smooth as it used to be.
For example, the Social Security trustees’ 2018 annual report projects that the Social Security fund will be depleted by 2034, meaning younger generations can expect smaller payouts.
Meanwhile, an appeals court’s recent decision to vacate the Department of Labor’s fiduciary rule leaves many investors at risk of losing chunks of their savings to hidden fees and conflicts of interest from unscrupulous brokers — the very same people who Americans trust to help them achieve their retirement goals.
Investors, however, can take ownership of their path to retirement by anticipating the treacherous terrain and adjusting expectations.
Making assumptions about money issues is never a good approach. New research has found that 1 in 4 pre-retirees expects Social Security to be their primary source of income in retirement — including 15 percent of millennials and 29 percent of Gen Xers. This is a huge mistake.
The sad truth is that if you’re under 50, it’s not a good idea to rely heavily on Social Security for future income. If you plan as though the program will be gone, potentially reduced benefits won’t deal such a blow to your retirement.
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One way to reduce dependence on Social Security is to invest in a tax-advantaged retirement vehicle, such as an individual retirement account. If your company offers a retirement plan, such as a 401(k), make sure you’re contributing as much as you can afford each year. At a bare minimum, contribute the maximum amount allowed to take full advantage of any matching contributions offered by your employer.
There is an expectation that you can always catch up later. When it comes to planning for retirement, earlier is better — but don’t give up hope if you weren’t able to put away as much as you would’ve liked in your 20s and 30s. Sadly, 39 percent of millennials and 34 percent of Gen Xers have no retirement savings. So how can this group catch up?
Whatever age you are, the first step toward securing your financial future is to take inventory of your assets and debts so you understand what you have and what you need. This isn’t as overwhelming as it seems. There are free online tools that can provide you with your financial information, including retirement savings accounts, investment accounts, investable cash, emergency funds, debts, bills and your cash flow.
Once you have a clear view of how the different parts of your financial life work together, you’ll have the clarity to determine how much you should be saving to catch up and what type of budget you’ll need to implement to get there.
There’s a belief that investors can meet their objectives without a comprehensive plan. Once you get a sense of your full financial picture, it’s essential to evaluate your other life goals and the stops you’ll make on the path to retirement.
Do you want to pay for your child’s college education? Buy a vacation home? Reflecting on all of your financial priorities is essential when building a comprehensive plan so you can allocate your savings in a way that makes sense for your goals and timeline. Saving for retirement can’t take place in a vacuum.
Research shows that emotion can negatively influence our finances. For example, experiencing sadness can lead you to seek instant gratification from your financial choices at the expense of long-term saving.
Good financial advisors can help you build out this comprehensive long-term plan and manage conflicting financial priorities. Not only will they help with planning, they’ll act as guides, helping you stay on track and manage unexpected roadblocks so you avoid emotionally driven decisions that can have an undesirable impact on your financial future.
The most important thing is that you start the journey, no matter your age. Remember, you don’t need to do it alone; there are many tools and trusted financial experts to help you.
Retirement planning might seem intimidating, but it doesn’t have to be if you understand what the road ahead looks like. The most important thing is that you start the journey, no matter your age. Remember, you don’t need to do it alone; there are many tools and trusted financial experts to help you map out and navigate the path to your financial future.
To that point, do your homework and research a financial advisor who suits your needs.
When choosing an advisor, make sure you understand the fees you’re paying and how that person is being compensated. Ask if the advisor’s firm is a fiduciary under the Investment Advisors Act of 1940, which means it is legally obligated to put your interests first.
If the answer is no, you may want to consider speaking with an advisor who is a fiduciary. Excessive fees can be detrimental to those saving for retirement, and when you’re saving on a shortened time frame, these fees can be especially damaging.
— By Jay Shah, chief executive officer of Personal Capital
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