How Much Life Insurance Do I Need?
The Role Life Insurance Plays in Your Finances The purpose of life insurance is to...
Previous Article: The 100-year old book that’s still a valuable guide to personal finance
Next Article: 4 Offbeat Hacks To Keep Your Holiday Spending In Check
We want to be transparent about how we are compensated. Some links in articles are from our sponsors. Learn more about how we make money.
Dad was several years older than Mom, and toward the end of their lives, in poorer health than hers.
I tried asking Mom if they had plans in place to take care of her when dad passed away.
For obvious emotional reasons, she refused to even think about it. Less than two years later, Dad passed away. We had to scramble to make sure Mom was financially secure. Dad’s pension and social security benefits dropped more than 40% once he passed, while expenses dropped by only 20%.
Shocks like this can derail your retirement plan, if you even have one. The following details some of the more likely shocks, and tells you how to keep your plan on track.
One of my favorite quotes on planning (often misattributed to Ben Franklin) says, “Failing to plan is planning to fail.”
What better evidence for this than the miserable state of retirement planning among American workers?
According to a TransAmerica Center for Retirement Studies report, only 1 in 5 workers has a written retirement strategy. Worse, nearly half of those who estimated their retirement needs confessed that their answer was a guess.
No surprise then that the estimated median savings for Baby Boomers (born 1946-64) is only $152,000. That’s only 15% of the $1 million workers believe they’ll need to retire. Gen-Xers (born 1965-78) are far behind even that low mark, with a median of $66,000. Millennials (born 1979-2000) have only $23,000 saved for retirement.
The median for all ages, $50,000, instead of increasing, dropped 21% over the past few years from the $63,000 in TransAmerica’s 2016 data.
Bloomberg reported recently that nearly half of Americans 55 or older have zero saved in a 401(k) and individual retirement plans.
According to BankRate, 2 in 5 Americans save nothing or less than 5% of their annual income for retirement. Only 1 American in 6 saves over 15%, which you need if you start at age 25 and want to retire by your mid-60s.
All this helps explain why 69% of workers 60 or older plan to work, or already work, past age 65. That’s if they even plan to retire.
The Society of Actuaries (SOA) examined how the unexpected can affect retirees and retirement plans. Major factors that could derail your retirement plans include:
Say you’re far ahead of the pack. You have a written retirement strategy. You even have more set aside than most of your peers. Have you considered that an emergency or medical issues could force you to retire sooner than planned? Or that you might need to deal with a savings shortfall for some other reason?
If you answered yes, you’re one of only 12% who have considered such risks. Broken down between generations, 14% of Millennials, 12% of Gen-Xers, and only 7% of Boomers have done so.
As for non-retirement shocks, the median emergency savings are $5000 for all ages ($2000 for Millennials, $5000 for Gen-Xers, and $10,000 for Boomers). That’s nowhere near the 3-6 months’ spending recommended by most experts. It’s even further from the 6-12 months’ expenses needed if your income is more precarious and/or have more responsibilities.
To keep your retirement plans on track, you need to manage the risks mentioned above. Here’s what you can and should do.
The first step in shock-proofing your retirement plan is to have a retirement plan in the first place.
Next, add a margin of 30% to what you think you’ll need, and set aside enough to fund that higher amount.
Finally, identify where you might be willing to reduce spending in retirement if the market tanks early in your retirement or you suddenly need to pay a large amount of money for unexpected reasons.
Where are you in your retirement planning process? Have you considered preparing for the unexpected?
Disclaimer: The information in this article is not intended to encourage any lifestyle changes without careful consideration and consultation with a qualified professional. This article is for reference purposes only, is generic in nature, is not intended as individual advice and is not financial or legal advice.