One in five seniors live in poverty – How to make sure you do not become one of them – The Motley Fool

Retirement should be a wonderful time in your life. Unfortunately, if you have too little money and too much financial worries, it will be a very difficult time. And that is the reality for far too many seniors. In fact, an Aspen Institute study found a 21% poverty rate among seniors in the United States, almost double the Organization for Economic Co-operation and Development (OECD) average .

Changes in social security and other benefit programs could help alleviate senior poverty, but policy solutions are unlikely at the moment and no longer a guarantee for the future. If you want to avoid living in poverty as a senior, you should take it right away. Here are some things you will want to do aujourd & # 39; hui if you are not yet retired and want to make sure you are comfortable instead of going bankrupt in your 60s, 70s and 80s.

Open a tax-efficient retirement account

According to the Aspen Institute, more than 55 million Americans currently do not have access to a professional pension plan, such as a 401 (k). Having a workplace plan makes saving for retirement easier, but there is no need to make tax breaks to save money. You can open an Individual Retirement Arrangement (IRA) with any broker and with many other types of financial institutions, including banks or robo-advisers.

When you contribute to an IRA (or 401 (k)), you can usually get a tax deduction for the contributions you make, up to an annual limit. You can claim this deduction even if you detail. Being able to deduct contributions means that the money you have set aside for your future will not reduce your net income as much. Suppose, for example, that you contributed $ 5,000 to an IRA and that you were in the 22% tax bracket. You will not pay the 22% tax on the $ 5,000 you were able to deduct, so you will save $ 1,100 in taxes. Your $ 5,000 contribution to your future will reduce your net income by only $ 3,900.

Calculate the income you will actually need in retirement

Far too many people end up with too little savings for retirement because they have no idea how big they really need. Whether you underestimate the amount of savings needed to meet your needs or overestimate the income generated by Social Security, you may find yourself in a desperate situation.

Instead of flying blind when it comes to saving for retirement, sit back and determine the number of your goals. There are several ways to proceed, including estimating that you will need 10 times the last salary saved to generate sufficient income. Check out this guide to see three ways to calculate how much you'll save for retirement to find the best way to determine your magic number.

Start saving as soon as you are young

If you wait too long to start saving money, reaching your retirement savings goal becomes much more difficult. If you strive to start as soon as possible, you will have more time for compound interest to work, so you will not have to save as much each month to reach your savings goals. It may seem difficult to find extra money to save today, but it will be much harder to live in poverty as a senior – so do whatever is necessary to save at least something.

This probably means that you need to budget, look for ways to reduce spending and put savings above discretionary spending. If you really can not make the numbers work, you can also look for a gig to earn a little more each month. Put the money from your full-time job in retirement savings so that your work is profitable to avoid finding yourself in poverty in the future.

Avoid the myths about retirement

There is a common misconception that you can save 10% of your income and have enough for your retirement. But with expected returns lower than the historical average, a longer life and rising health costs, the reality is that you probably need to save 15% to 20% of your income.

There are also many misconceptions about the amount of income that Social Security will replace. In reality, social security benefits are designed to replace only about 40% of your income, while most experts suggest that you need at least 70% to 80% of earnings before retirement to maintain a comfortable lifestyle. If you think social security is going to be enough and you do not need to save a lot, reevaluate it today.

Finally, many people think that if they do not have enough savings by the time they reach the age of 60, they can simply work longer. Unfortunately, health problems and lack of jobs for the elderly often require you to retire earlier than planned. Being forced to retire sooner than expected, which greatly increases your risk of financial hardship, as you will have less time to save, you will need to rely on your savings sooner and risk ending up with a social security benefit reduced if to claim early.

To make sure you do not find yourself in this situation, set your retirement plans as if you would leave the job market at age 62. If you work longer, you will simply be richer than expected and this is never a bad thing. .

Do not become a poor elder

If you are still young and working, you have the power to avoid becoming one of the millions of American seniors who live in poverty. Start saving now, even if you have to start small. Save as much as possible to have the money you need for your golden years to be at ease. You have to make sure that your future will not end up in poverty, because as difficult as seeming to save today, it's a lot easier than being broke at the age of 80.