Duck! Your retirement is coming! It might seem far off, but it’s not. How you act now is critical to your future security.
Failure to start planning your retirement in your 20s, 30s or however old you happen to be now is more dangerous and misguided than it ever has been. If you don’t have a good plan, you’re putting your future security and a really fun period of life in serious jeopardy.
What Is A Good Retirement Plan?
Some people think a retirement plan is just a savings account. However, it should be much more.
Every financial decision you make now affects your overall lifetime wealth and ability to retire securely. Buying a house, obtaining student loans, having children, buying new cars or saving and investing your income — they can all have huge impacts on what resources you’ll have after retirement.
Retirement is the end game of all the years you are occupied with earning, spending and saving.
Your retirement plan should be a detailed account of all aspects of your finances now and into the future. That may sound like a tall order, but it doesn’t have to be. There are some online tools that can help you immediately. The NewRetirement retirement planning calculator is a comprehensive and detailed system. It’s easy to get started, see a personalized assessment and find ways to strengthen your plan.
7 Reasons Why Planning for Retirement Is Critical
Here are seven reasons it is more important than ever to get a retirement plan — now.
1. The Economy is Stacked Against You
It is not your imagination. It is hard to get ahead. Perhaps harder than ever before. According to Pew Research, since the turn of the century the middle class has shrunk in every state but Hawaii.
This means that it’s more important than ever to adopt smart personal finance habits. Live within your means, save money for retirement, invest wisely, only borrow if it will help you get ahead (like buying a house), have an emergency fund and backup plans in case things go awry. Manage your money like someone wealthy even if you are not.
2. Social Security is Failing
First of all, in case you don’t already know, Social Security is only meant to supplement retirement income — not be your retirement plan. It’s typically not adequate to fund living expenses in retirement.
However, it may be risky to expect your Social Security income at all. According to a recent report from the Social Security and Medicare Boards of Trustees, Social Security will not have enough money to pay off its obligations starting in 2034 — just 16 years from now. At that time, Social Security will only be able to afford to pay three-quarters of what it owes.
3. Medicare is in Worse Trouble than Social Security
Out-of-pocket medical costs are the third biggest expense for most retirees. And don’t expect much help from the government for your health care bills.
Yep… the news about your government benefits gets even worse. The same Board of Trustee report suggests that Medicare will be unable to meet their obligations starting in 2039.
4. You Don’t Know What You Don’t Know About Retirement
Apparently, financial literacy is lower than most people expect. Fidelity asked more than 2,000 people questions in eight different retirement categories. Only about 30% of the questions were answered correctly. Absolutely no one got all the questions correct and the highest overall grade was 79 percent. Can you do better?
Whether you score well or not on the quiz, creating a retirement plan can be the best way to start learning about financial concepts. A good online retirement platform allows you to play with your own numbers and find opportunities.
5. Regrets… You’ll Likely Have a Few
Wouldn’t it be nice to retire without a single regret? Maybe you can learn from the common mistakes as listed by today’s retiree’s and do just that.
NewRetirement surveyed users to find out the secrets of a successful retirement plan and they found that retirees have some common regrets. They include:
- Bad investment decisions (27%)
- Not saving enough (21%)
- Choosing to worry about money instead of enjoy family or experiences (16%)
- Not investing enough in their own health (13%)
- Not planning well enough or making a planning mistake (12%)
6. Goals and Plans Will Reduce Your Stress Now and Make Things Possible in the Future
Ugh… with all this bad news, you’re probably feeling the clear and present danger of not having a retirement plan.
The good news? It is easy to reduce stress. Just create a plan as soon as possible.
According to the American Psychological Association, it may cause anxiety to set up a plan, but it greatly reduces stress over the long term.
7. If You Plan, Maybe You Could Retire Early — Really Early
If you are reading this and thinking that retirement seems like an impossible dream, think again.
A good plan will get you there. And a really good plan and lots of discipline can get there in a really short period of time.
There is a movement called, “F.I.R.E.,” which stands for financial independence, retire early. Proponents of F.I.R.E. like Mr. Money Mustache opt to live frugally and save up to 80% of their income. In exchange, they get to achieve financial independence at a very early age — like in their 30s or 40s.
Retirement can be done. It doesn’t need to be painful. It just takes a plan.
Kathleen Coxwell is a reformed personal finance deadbeat. After recovering from a student loan disaster, she used her know how to help her parents and in-laws plan for retirement. And seeing a big need for unbiased financial advice and tools, she co-founded NewRetirement, a company dedicated to helping people imagine and plan for a secure financial future.