How to Make Some Provisions for Retirement | brokeGIRLrich
It’s never too early to think about retirement. It will come one day and those who even save a small amount while they are in their 20s are likely to have a much more comfortable and satisfying time than those that spend all their income as they go along.
The Social Security System was never intended to be able to completely fund retirement. In fact, without significant extra funding benefits are likely to fall from the mid-2030s onwards. Present predictions are that benefits would have to fall by almost 25% unless extra funding is found.
Warning Signs
The System is undergoing changes anyway and some loopholes that people have been able to exploit to their advantage are being closed. There are signs that there will be resistance in Congress in the years to come to expand benefits anyway. Other demands on national revenue appear to be regarded as more important. The Republicans are extremely keen to reduce federal support so there is no guarantee that the System will continue in its present form and at the present level of support.
Those who have already retired may be protected from shrinking benefits but younger people should heed the signs and get their finances in order. The expression of retirement as ‘the Golden Years’ will no longer be a right. Obviously those with retired parents are delighted to see them being able to enjoy their later years but they will not have the same experience themselves unless they plan properly for the time when there is no longer a pay check coming into the home.
401K
Businesses that care for their employees may have pension plans and individuals opening a 401K should be able to get employers to match their contributions up to a specific amount. If you have access to one, a 401K (or its equivalent) is something that everyone should open as part of their future financial planning.
The Young Are Listening
The signs are that the younger generation are listening to the warnings. The age group with the most problems appear to be those in middle age. Those wanting $20,000 a year in retirement, even with Social Security, will need $500,000 in savings. As people live longer, their funds need to be greater. You can judge for yourself what income you feel you will need in retirement and make your decisions accordingly.
Dangerous Middle Age
Time can be an ally but also an enemy. Those in middle age face an enemy especially if they are also carrying debt whilst not saving sufficient for their later years. Albert Einstein once described compound interest as the ‘eighth wonder of the world.’ Even a small sum put away regularly for a long period will grow far quicker than anyone would expect. The problem for those in middle age is the number of years they can get that growth before they reach retirement age.
It is important to have a plan, a financial budget. It is far more important to personal well-being than a big house, new car and the latest fashion. The budget must show a break even at the very worst. Ideally it should show a significant surplus and that surplus has to be used towards the future. There are various ways to build up assets. Real estate is a good one but that is not something that will magically grow sufficiently for those in middle age and beyond. Other than a personal retirement account like a 401k or an IRA that everyone should have, there are solid, and fairly risk free investments that should provide growth. The more of a surplus that can be created by financial planning the better.
It is difficult for anyone to build up surpluses if they are carrying significant debts. Credit card debt is particularly worrying because credit cards are expensive if users carry forward unpaid balances. A installment loans is a good way to pay off such balances and those in regular employment are likely to be approved if their application is realistic. It is a first step towards reducing and getting rid of debt completely. At the end of the following month there is likely to be a surplus which can be the start of a new financial life.
This is a great post. The recent Social Security tweak to eliminate a couple of filing strategy gimmicks should have been done away with long ago. They were popular with only those with the means to support themselves without Social Security longer and so the majority of Americans couldn’t and didn’t use them anyway. That said it seems to be always under political threat. I believe it will be there for everyone who pays into Social Security in some form and the young should not only expect it they should demand it. Nothing happens in DC without big money or votes/the lack of votes. I retired early at 51 but my long term plan does include Social Security. The young’s retirement plan should too. Once a major voting block becomes apathetic about Social Security or accepts the notion that it won’t be there then there is no fear of voter backlash and it will happen to them. Big Money does not want to have to repay all that the government has borrowed from it. Save and invest as much as you can and not only expect but demand your Social Security benefit backed by your votes. It is the only retirement plan that actually works.
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I do also think Social Security will probably be there by the time I’m old enough to collect it, but I don’t actually factor it into my savings plans. I figure better safe than sorry.
I hope it will be there, but I don’t count on it. Maybe I should listen to Tommy, though. I always thought it was a numbers game, but I can see how apathy would play into it.
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