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Living longer significantly increases the amount of savings needed for retirement. An actuary is someone who uses math, statistics, and financial theory to assess risk. Actuarial studies show that people now need to save enough to cover an additional 15–20 years of retirement or face running out of money. Social Security. You just learned that Social Security is intended to provide a financial safety net for seniors. Unfortunately, the fund is
By the time you reach the age of retirement, Social Security benefits are likely to be reduced and the age of eligibility to rise.
becoming increasingly unreliable. This is because to fund Social Security, there must be a younger working generation paying into it. The population is aging and fewer young workers are coming in to shore it up. In other words, outflow is exceeding inflow . Also, people are living longer, which places additional strain on the fund. Unless the system is totally overhauled there’s a possibility it could run dry. At a minimum, expect your benefits to be reduced and your age of eligibility to rise above 67. Student Loan Debt. It’s hard to believe, but the effects of student debt can actually haunt you well into your golden years. One of the biggest setbacks to your generation’s ability to build wealth for retirement is student
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debt. Much of the money young people previously used for contributing to a 401K or IRA or buying a home is being diverted to pay student debt. The high rate of student debt presents yet another challenge to building retirement wealth. Zero Savings Culture. Americans have essentially stopped saving. They are racking up consumer debt by overspending with credit cards. Money that people should be saving for retirement is being diverted to pay credit card debt . Without savings, retirees have no funds to make up the shortfall between the money Social Security and Medicare provide and the amount they need to live comfortably. Homeownership Habits. As you learned in Chapter 9, Home is Where the Mortgage or Lease Is, homeownership is an effective way to build wealth. However, like savings rates, homeownership rates have fallen.
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Experts say there are a variety of reasons for this. One is that the burden of student debt and a high rate of consumer debt preclude young people from saving a down payment. Another is lifestyle. Whether for social or career reasons, many people are hesitant to be tied to a particular location for an extended period of time. 401K Non-participation. Another challenge to funding a comfortable retirement is the fact that many young employees in their 20s and 30s often delay enrolling in their employer’s 401K. Others under-contribute to their account failing to take full advantage of the employer’s matching contribution. In their 40s and 50s, realizing how far behind they are in their retirement savings, they increase their contributions to make up for lost time. Money can be tight, but a 401K is the last place to pull back financially. As you know, compounding is time sensitive. Reducing contributions during prime earning years seriously impacts growth. The benefits of regular, long term contributions to a 401K or IRA cannot be overstated! Medicare. Medicare does not pay for everything. Even with Medicare, the patient is personally responsible for
Chapter 10 | Your Risky Retirement 182
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