3 reasons why retirement is a more precarious prospect today than before – The Motley Fool

Many workers look forward to their retirement and the opportunity to enjoy life without the restrictions of a full-time job. However, it is easier to say than to take a full break from work. Here are some reasons why retirement is not what it was years ago – and what you can do about it.

1. Loss of pensions

Previously, if you worked for the same company for an extended period, this employer paid you a pension that paid you a certain percentage of your pre-retirement income. But these days, most employers are giving up their pensions for less expensive 401 (k) plans. In fact, in 2017, only 16% of Fortune 500 companies offered retirement to their employees.

The result? The burden of setting aside funds for retirement now rests with individual workers, many of whom have too much expense to make substantial savings. In addition, while employers are responsible for investing pension dollars to cover their potential obligations to employees, individual workers who save in the 401 (k) funds of their business assume all the risks associated with them. investments. Those who do not choose their investments, or who invest too conservatively, can easily end up in retirement.

On the other hand, if you have access to a 401 (k), you can accumulate substantial wealth by contributing regularly over time. Although the current annual contribution limits are $ 18,500 for workers under 50 and $ 24,500 for those 50 and over, a saving of $ 500 per month over a 40-year period will produce about 1, $ 2 million if this money is invested on average 7% per year back. However, these 7% actually represent a few percentage points less than the stock market average, which means that stocking is a wise choice.

Now, your plan may not allow you to invest in individual stocks, but if that's the case, look for equity-focused mutual funds that offer integrated diversification. Better yet, charge the index funds, which offer the same benefit with lower fees.

2. Higher levels of debt among older Americans

It's no secret that Americans are quite willing to go into debt, but you may be surprised to learn that nearly 50% of people aged 75 and over have unpaid debt . The problem, of course, is that all The level of debt can eat away at limited retirement income, creating a situation in which spending is difficult to cope with.

If you find that you are still in debt as you approach retirement, paying it off before you end your career can make all the difference between a comfortable retirement and a stressed person. In this case, the best is to take a look at your existing debts and pay the most expensive ones first (usually your credit cards). From there, you can move on to the issue of student debt (which has a surprising number of seniors) and mortgage debt (which 30% of seniors fail to shake before retiring) ).

In some cases, you may need to work longer to eliminate your debt before retirement. In others, you may choose a second job during the last part of your working years, both to earn extra money and to provide you with a viable job that you can retire. Whatever the case may be, do not make the mistake of ignoring your debt and regretting it once your golden years begin.

3. The uncertain future of social security

Although social security has never been designed to support retirees in the absence of additional income, these benefits make play an important role in helping seniors avoid poverty and pay a portion of their bills. Unfortunately, social security is facing a major income deficit that, if left unresolved, could result in a substantial reduction in benefits by 2034. The consequences could be catastrophic for current and future retirees.

This is why it is crucial to save for retirement independently and rely less heavily on social security. Although the program is in no way bankrupt, the latest projections indicate that beneficiaries could consider a 21% reduction in benefits in the future. For the average beneficiary, this represents a loss of income of approximately $ 3,700 per year. On the other hand, if you take steps to create your own nest egg, you will no longer have to worry about social security and you can use your benefits in the form of bonuses, so to speak, rather than rely on them to cover them. your expenses.

It is not easy to retire these days, because pensions are a thing of the past, the debt level of seniors is as high as it is and the future of Social Security is at best unstable. But if you take steps to save for your golden years and you get rid of your debts before you enter them, there is a good chance that you will manage to retire after all.