At one time, the United States was known for its retirement security. A recent survey however indicates that the U.S. is no longer even in the top 15 when it comes to retirement security. A number of things have led to the decrease-here’s what you need to know.
According to the 2017 Global Retirement Index published by Natixis Global Asset Management, the United States ranked #17 for retirement security. This was down three points over the previous year. For the second consecutive year, Norway ranked number one, followed by Switzerland and Iceland.
In calculating its results, Natixis looked at a number of criteria, including:
- A retiree’s access to financial services such as banking
- Quality of medical care
- The ability to live safely and comfortably
Reasons for Top Rankings
Norway has the largest sovereign wealth fund in the world. One estimate values that fund at more than $960 billion. It is now bigger than Norway’s entire economy, amounting to approximately $185,000 for each of the country’s citizens. The fund is also well protected, as the Norwegian government may use only a small amount of the fund’s overall value.
While not in the top 3, New Zealand and Australia did rank in the top ten. Both of these countries have mandatory retirement savings plans to ensure people are financially secure during their golden years.
Reasons for U.S. Rankings
In the United States, the pool of working-age adults is decreasing at the same time the number of retirees is increasing. This means there are fewer workers paying into programs such as Medicare and Social Security.
An increased cost of living also means more Americans are planning to work past age 70; some may not even retire at all. This is partly out of necessity. It is estimated that nearly half of all households will be unable to sustain their current standard of living once they retire.
Americans are also holding onto their retirement funds longer. Recent data suggests that only 18 percent of those age 60 or over make withdrawal in any given year. The number of withdrawals also rise sharply after age 70 ½. That’s the age at which tax penalties are assessed on those who do not make required minimum distributions.
A study performed by United Income showed that adults who are nearing retirement age are becoming increasingly pessimistic about their financial future. This is true even as more senior adults are entering the workforce.
While the study did uncover some negatives, it also revealed that the United States has many advantages for retirees. A few of those advantages include:
- Relatively high per-capita income
- A low unemployment rate
- Low levels of inflation
- Stable banking and financial institutions
- Sound environmental policies that lead to clean air
Although the U.S. does have many economic advantages, nearly 88 percent of all Americans now believe they face a retirement crisis. Now more than ever, careful retirement planning is important for those who wish to enjoy life to the fullest once they stop working.Continue reading
Few people plan on getting divorced, but when it happens close to retirement age, it can wreak havoc on even the best-laid plans. The closer you are to this milestone, the greater the effect of a divorce will be. If you have recently divorced or are in the process of obtaining a dissolution, here are some things you should be aware of first.
Retirement Funds may be Divided
Retirement accounts established prior to marriage are often considered personal rather than community property. However, any funds placed into an account during the marriage might be thought of as marital property. In that case, you could be ordered to divide it.
As an example, suppose your retirement account had $50,000 prior to marriage. After saying “I do”, you contributed another $50,000 to your account. A judge might order you to split the second $50,000 with your spouse.
Laws in each state are different, so you should not assume this is the norm until after you have consulted with an attorney.
Decreased Potential for Future Savings
Many people are unaware of the financial impact a divorce can have. You may find that your income has dropped significantly, yet your living expenses remain nearly the same as before. This naturally forces people to tighten their belts, in which case saving money may no longer be an option. And if you must dip into your 401(k) plan to pay off debt or settle legal expenses, you can be doubly impacted.
May Need to Work Longer
A smaller retirement account coupled with less money to save means you may not be ready to retire quite as early as you had hoped. You may even find yourself needing to take on a second job just so you can put something away. If you have already retired, the loss of your spouse’s benefits could force you back out into the workforce.
Mitigating the Financial Impact
The best thing you can do to minimize the impact is to consult with a financial planner or tax professional. You may even desire a Certified Divorce Financial Analyst if you have a large number of retirement assets to haggle over. Some things you may want to seek advice on include:
- Receiving retirement funds in a lump sum versus monthly payments.
- Keeping the marital home in lieu of retirement funds.
- The possibility of drawing Social Security spousal benefits, which in many cases can net you a bigger monthly check.
A domestic attorney will also come in handy when obtaining a Qualified Domestic Relations Order (QDRO). A QDRO is required when splitting certain retirement accounts such as employer-sponsored 401(k) plans. Without a Qualified Domestic Relations Order, you may not be eligible for disbursement, even with a judge’s order.
Getting a divorce is never easy, but it is especially difficult when you or your spouse is near retirement age. If you are over age 50, keep these things in mind to ensure you do not come up short when it is finally time to stop working.Continue reading
A good number of “millennials” are already in their 30s, and should be saving for retirement. However, many of them are not contributing anything toward their retirement fund. Just because you aren’t making lots of money does not mean you cannot save. Here are some practical ways those under 35 can begin planning now.
#1. Take Advantage of Employer Sponsored Plans
It’s surprising how many people do not take advantage of employer sponsored plans. If you are not contributing anything, you are missing out on a great way to save. Not only can you realize a tax savings, but by having deductions taken directly out of your check you will automatically be forced to save.
#2. Save Something-Even if It’s only a Little Bit
Perhaps you aren’t making quite as much money as you had hoped, or find that you have more expenses than what you had previously planned for. Just because your paycheck is already stretched thin does not mean you cannot save. Even a few dollars here and there will add up over time, so you should make it a point to start saving something rather than doing nothing.
#3. Have a Financial Analysis Performed
Consult with a financial planner to identify ways in which you could pay off debt and begin investing. After having a financial analysis, update it every three years or so to keep on top of changes that might affect how you save for retirement.
#4. Consider Home Ownership
Owning a home is still one of the best ways to achieve financial security during retirement. With major lenders such as Fannie Mae and Freddie Mac now revising their standards, it may be possible to obtain a mortgage even if you have student loan debt or very little money for a down payment. Since a mortgage payment is cheaper than rent in many areas, you could free up some cash that you could then add to your retirement account.
#5. Become Familiar with Savings and Investment Apps
One reason cited for not investing is a lack of time. That’s no longer an excuse, thanks to dozens of financial apps that can help you do everything from save money to make sound investments. Studies also show that many millennials are intimidated by speaking with investors. So-called “robo-advisors” allow you to make investment decisions with minimal person-to-person contact, and can therefore be a great way to start.
#6. Remain Consistent in your Efforts
In the beginning, it may seem as though you are building your retirement fund very slowly. Do not be discouraged by what you feel is a lack of progress. Continue putting back even your spare change, and you will be surprised at what a difference it will make.
Being a young person these days does come with its challenges, particularly when it comes to saving toward retirement. That doesn’t mean it is impossible, as even a small effort can produce huge dividends. If you are not yet saving, now is the time to get started.Continue reading
Reaching age 65 used to mean that retirement was just around the corner. That’s not necessarily true these days, as more and more Americans are postponing retirement well beyond that milestone. Attributed to financial needs, the trend does not show any signs of slowing down anytime soon. Is the notion of retiring at age 65 a thing of the past? For many people, the answer is “yes”-here’s why.
The number of people over age 65 has reached staggering proportions. Current statistics show that:
- Almost 20 percent of those over 65 have not yet retired. This is the highest percentage in more than 50 years.
- Senior adults are now working more often than young people. There are now more individuals age 55 and older working than those age 16 to 24.
- The number of working senior citizens is expected to be 32% by 2021, and is anticipated to continue growing over the next decade.
While the number of working seniors continues to increase, the amount of working adults age 25-54 is expected to remain virtually unchanged in the coming years. However, the gap between workers age 16-24 and those over 55 is only expected to widen in the near future.
What is Driving this Change?
Senior citizens these days are not just working to remain active. For many, there is a real financial need that can be met only through continuing employment. Why are so many older adults in dire financial straits? There are a number of reasons, including:
- Decreased earnings and/or retirement savings following the Great Recession.
- The fact that many companies have moved away from pension plans in recent years, leaving many people with no guaranteed source of income aside from Social Security.
- A lack of access to retirement savings plans. Research from the American Association of Retired Persons (AARP) shows that 55 million employees have no workplace retirement savings plan.
- Low participation in Individual Retirement Accounts (IRA). One estimate showed that only five percent of those with no workplace retirement fund actually participated in an IRA.
Is 70 the New 65?
Career Builder recently conducted a survey on workers age 60 and older. That survey revealed that among those who did plan to retire, age 70 was the preferred benchmark. Putting off retirement until age 70 does have some benefits, namely:
- Making it possible to delay Social Security benefits, allowing for a larger payout later.
- Receiving health insurance benefits at a reduce cost. Premiums for an employer-sponsored plan are often less expensive than Medicare Part A or B.
- Continuing contributions to an employer-based 401(k) or retirement savings account.
- Access to health savings accounts.
- Stretching retirement savings over a fewer number of years.
Retirement at age 65 may no longer be the norm. Financial concerns coupled with an increased life expectancy means that more people are working longer. A good number will even put off retirement indefinitely. Middle-aged and younger adults should heed this trend and begin preparing now if they are to achieve their dream of retirement.Continue reading