Many Americans think they will never retire because they fear they haven’t saved enough. But let’s suppose you are not the average American wage earner or saver.
Let’s assume that, like many people who read this publication, you’re financially successful. You’ve been a hard worker and diligent saver all your professional life, and you deserve a fulfilling retirement. You have planned well for it and want to maximize it.
When most people meet you, they would say you appear to have it all together. You’ve probably worked with a financial professional for a good number of years. You’ve had productive discussions about your risk tolerance and investment returns.
Perhaps you’ve saved $1 million or more if you’re fairly close to retirement. Or maybe you’re about halfway there, which would still put you among a small percentage of Americans who have saved that much. Only 17.6% of individuals age 65 and above have retirement savings of $700,000 or more, according to the Employee Benefit Research Institute.
But like many who seem on track toward a nice retirement, you are not confident about it. While research says you are to be congratulated, and while you should feel good about how hard you’ve worked and how much you’ve saved, you still don’t feel wealthy. Recent data from Northwestern Mutual’s Planning & Progress Study 2023 reveals that even millionaires are worried their savings will fall short in retirement.
So, why don't financially successful people feel more confident about retirement? Here are the primary reasons. All of them are issues you should address with your financial planner.
Uncertainty about the future — inflation and interest rates
Many pre-retirees are pushing back their retirement plans due to factors such as inflation and high interest rates that create more economic uncertainty about the future. The good news is that inflation is much lower than it was in the summer of 2022. But the challenge is taming the last bit of inflation to reach the Fed’s target of 2%.
With mortgage rates high and Americans carrying over $1 trillion in credit card balances, the Fed’s next moves will have big implications for pre-retirees, retirees and the economy. Will they keep raising interest rates to try to lower inflation?
Government debt and the deficit
Out-of-control government spending and overloaded government debt must have consequences on savers and the U.S. economy, but they haven't seemed to yet. But what’s that going to mean in retirement? Fitch downgraded the U.S. government’s credit rating in August.
The most obvious consequence is that the U.S. will have to pay higher interest on future debt, increasing its debt load even more. Since interest payments form a significant percentage of federal expenditures, this may become a bigger issue in the future. Analysts are concerned that the U.S. doesn’t have a plan to rein in its spending and balance its budget in the years to come.
Long-term care costs
Long-term care is a big unknown for many heading into retirement. According to research by the Center for Retirement Research, about 20% of 65-year-olds will not need any long-term care for the rest of their lives, and another one in five will need only minimal support. But 38% are likely to need a moderate amount of care for one to three years. How should you prepare for and pay for expensive care that you may not need?
Stock market volatility
What is my $1 million in savings really worth? The up-and-down of the stock market can make even the most experienced investors uneasy. Some things to keep in mind as you chart options with your adviser:
- Continuing to contribute to your retirement plan, such as 401(k), Roth or traditional IRA, gives you the potential to dollar-cost-average into the market, taking advantage of market dips and eventual recoveries.
- Investors close to retirement may want to increase the “safety” in their portfolios, opting for non-equity-type investments to protect from volatility and minimize the time needed to recover from a market downturn.
Taxes
Even the most diligent savers have big concerns with future taxes as well as with gaps in their planning that may result in taxes that could have been avoided if they more fully understood their options. Like my dad used to tell me, “It’s not how much money you make, it’s how much you keep that matters most.” It’s not how much income you have or how much your investments are worth, it’s how much you’re able to use after tax that counts.
Most people have never even had their previous year’s tax returns analyzed for missed opportunities to lower their taxes and for future opportunities. Most don’t look at the current tax code, the possible tax code to come or where they’re investing their money to consider how those issues affect their tax situation.
Retirement is not as simple to plan for as it was decades ago, when more people had pensions to go with their Social Security and savings. Now, retirement relies mostly on savings. And the question remains for most people, even those who have saved the most and planned the best: “Will it be enough?”
The best way to overcome fears and concerns about retirement is to meet with your financial planner to talk about your personalized plan and address each of the aforementioned reasons that you and so many others aren’t confident.
Dan Dunkin contributed to this article.
Appearances in Kiplinger were obtained through a public relations program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
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