Making Retirement Provisions Early Is Always a Good Decision
There are always decisions to make when it comes to finance; competing demands can make those decisions similar to walking a tightrope. There may never be a single ideal solution, certainly if money is tight. The recession has been a case in point. Many people found their planning was destroyed by factors beyond their control. For those in middle age and older there is limited time to prepare for retirement with the Social Security System their main fall-back.
The Social Security System is currently the subject of great debate because it is under extreme pressure. The problem is that people are living longer and therefore the demands on the fund are increasing. Set against that is the fact that fewer people are paying in and therefore the fund is inevitably dwindling. It is estimated that within a couple of decades things will be critical. Benefits would be reduced by around 25% unless there is a change of policy within Congress. It would mean increased taxation which is currently very unpopular.
People can start to draw benefits at the age of 62 but that reduces the money available. At present some 40% of Americans are doing that which suggests they have not made proper provisions for retirement. Those who can delay until actual retirement age or even to 70 will get a much better return because they are investing extra years, and therefore its growth. Decisions again! Interestingly people seem to prefer a guarantee of an identifiable monthly figure than the challenge of investing a lump sum in such a way that their monthly income is dependent upon their success.
It is difficult to know what you are going to need when it comes to retirement investment plans. Social Security ideally supports other provisions that you have made. A 401K is a good plan and employers that contribute towards it makes it better again yet it makes it no easier to know whether the savings are sufficient. After all with people living longer it can be a matter of needing enough for 20 or even 30 years.
Save in Your 20s – Use Credit Cards and Negotiate with Lenders
It goes without saying that the sooner you start to save the bigger your fund will be. Even if you begin with just a small amount in your 20s it will help. There should always be scope to save a little even if that involves making economies and cutting out waste. Certainly if you are carrying a credit card balance that is waste because you will be paying a high rate of interest each month. It is better to negotiate a realistic personal loan with a much lower rate applied to pay that balance off. Even if you just start by saving that figure and any other savings by analyzing your utility costs, telephone network and insurance premiums that is a good start.
Budget is Important
Budgeting is important at every stage of life, starting in your 20s and continuing right into retirement. A budget should be flexible and truly reflect what is going on. If it shows you are overspending then you need to rectify that immediately and then have the discipline to stick to the budget once you seem to be ‘in profit.’ It should be an exercise for life.
When the day arrives you will be starting to spend from your retirement fund rather than adding to it. Some retired people continue to work but those that don’t have decisions to make about how much they can afford to withdraw each month. Most people only take a small percentage each year because they simply don’t know how many years they are going to live. There is no ‘right decision’ on this because it is not an exact science.
If you had bought an annuity then you would know the monthly money you will receive but that is down to decisions again; whether to buy an annuity or not. There is nothing wrong in getting advice on this and rejecting it if you don’t like what you hear.
No one gets every financial decision right. If you at least make every effort to save throughout your working life and avoid expensive debt then retirement ought to be a comfortable time.
Sources: huffingtonpost.com / marketwatch.com