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I. Retirement: The Big Risk This chapter continues with the theme of building wealth . Specifically, we will explore building wealth for retirement . Is your vision of your golden years one of living in an affluent area, jetting off to tropical beaches or golfing with your senior BFFs, enjoying a relaxed and retired lifestyle? You will have put in all those years working, so why not live it up and really enjoy your freedom? Well, here’s a dose of reality:
Senior Poverty. In the United States, about fifteen percent of older adults are living in poverty . That’s 6.4 million seniors scraping by, barely able to keep a roof over their head or food on the table, or having to rely on charity and federal programs to survive. Since the U.S. population is aging, the percentage of seniors living in poverty is expected to rise. According to studies by The Center for Retirement Research at Boston College and other experts, most Americans are unaware of the financial risks they face in retirement and are woefully underfunded to be able to live out their golden years with enough money to cover even basic expenses!
Reduced Standard of Living. The National Retirement Risk Index indicates that, even if a person has saved enough money to avoid retiring into a life of poverty, more than 52% of U.S. households are at risk of not having enough to maintain their pre-retirement standard of living when they stop working . That means they can forget about traveling or living it up. Many retirees will have to downsize, such as move to a smaller home or apartment, cut their cost of living, move to a less affluent area, do without many of the things they enjoy, or (OMG!) move in with their grown children. PRODUCT PREVIEW How Much is Enough? To retire comfortably, you need sources of funds that provide you with 75-85% of your preretirement annual income . For example, someone who stops working at age 65 when they are earning a salary of $75,000, will need to have other sources of income that provide them with about $56,250 to $63,750 annually. Experts advise that to reach this goal, employees need to sock away at least 10-15% of their salary every year of employment. Let’s take a look at traditional and other sources of retirement income, and then at some of the unique challenges your generation faces to building a secure and comfortable retirement. Reflect on Learning: Can you list the risks associated with an underfunded retirement? Poverty, reduced lifestyle and standard of living. How much does a retiree need to live comfortably? 75% to 85% of their preretirement income. II. Government-Sponsored Retirement Income Social Security. Social Security is a federal government entitlement program created under the Federal Insurance Contributions Act (”FICA”) . Social Security provides monthly benefits to retired workers. Recall from Chapter 5, Honey, They Shrunk My Paycheck, that every pay period, employers collect and pay 6.2% of an employee’s earnings into the Social Security fund. That money is not reserved in an account for the benefit of the employee. It is immediately paid out in benefits to currently retired workers. Social Security is not a source for funding a lavish retirement. It is intended to be a safety net for covering basic living expenses for To retire comfortably, you will need sources of funds that provide you with 75-85% of your pre-retirement annual income.
THE 21st CENTURY STUDENT’S GUIDE TO FINANCIAL LITERACY 177
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