We hear a lot about the retirement crisis in America and there’s a great deal to be concerned about these days. With a decline in pension availability and concerns about the long-term viability of Social Security, the burden of saving for retirement rests squarely on our shoulders. However, the average American has less than $25,000 in total savings and investments for retirement (see EBRI’s 2015 Retirement Confidence Survey).
One positive sign is that retirement planning remains the number one financial planning priority for the average person seeking financial guidance. But when you’re burdened with student loan debt, credit cards payments or just simply trying to pay the bills, retirement no longer becomes the top priority. The stark reality remains that at some point you will need to reach a state of financial freedom even if you are struggling to deal with financial stress.
Last week, I met with an incredibly resilient woman who has overcome many challenges impacting her health and wealth that put her significantly behind in her goal to retire within the next 15 years. She told me how divorce and medical issues were just a few of the life events that eventually contributed to some not so smart financial decisions in her past. Rather than continue to go down this path, she fought through and found ways to gradually start rebuilding her life one small step at a time.
Thankfully, her medical issues have improved and she is living healthier but also able to finally accumulate some money in her savings account. Still, we talked at length about how frustrating it can be to even contemplate retirement when you are just trying to create some sense of financial stability. Listening to her share these concerns that so many others are experiencing makes it evident that mainstream retirement planning strategies do not always seem to address them.
It can be quite frustrating to try to plan for retirement while dealing with day-to-day struggles. That is why I believe that we have more than just a retirement crisis in this country. We have a financial wellness issue and the path to financial independence requires major improvements in our own financial health as individuals. Perhaps the best path to achieving authentic financial freedom is to not get bogged down with the frustrations that we aren’t doing enough to save for retirement and to do more to improve our own sense of financial well-being. This is especially important if you are already in your 50’s and still trying to take control of your financial life.
The guidelines are pretty straightforward to help focus on building a financial foundation, which is a core component to creating that sense of financial wellness:
1. Establish some money to cover emergency expenses (think “starter” savings).
2. Contribute enough in a retirement plan at work to capture the full employer match.
3. Eliminate any high interest debt (e.g. greater than 6%).
4. Fully fund your emergency savings fund with enough money to cover 3-6 months of living expenses.
5. Aggressively save as much as you can in a 401(k) or 403(b) plan, IRAs, and health savings account. (Somewhere in the range of 10-25% of pay or more is usually ideal.)
These financial behaviors are foundations of financial wellness. Late starters still trying to find their financial footing should first shift the focus from worrying about retirement to finding a balance between short-term savings and paying off high interest debt. For those seeking other ways to bridge the retirement savings gap, there are a few other strategies to consider. Here are just a few ideas:
- Consider delaying retirement or at least weigh the possibilities of another job if you need a less stressful or physically demanding environment.
- Don’t wait! Downsize your expenses now to aggressively free up potential savings.
- Focus on paying off your mortgage and other debt by your desired retirement age.
- Don’t take on any extra debt.
- Maximize Social Security benefits using strategies such as file and suspend and spousal benefits if you are married. Don’t miss any potential benefits from an ex-spouse if you were married 10 years or more.
- Sell valuable but unneeded items (e.g. old jewelry ), donate items for tax deductions, or sell clothing.
- Factor in plans to work on a part-time basis for a few years.
- Delay Social Security to age 70 if you have average life expectancy and can afford to wait.
There are no shortages of potential options for retirement late savers and some of these ideas are a little more painful than others. Get started saving as soon as possible even if you may not be on track to meet your desired retirement income goals. In the meantime, the best strategy is to focus on improving your financial wellness because financial knowledge, behaviors, and money attitudes are directly linked to retirement preparedness. I am inspired by the courage and resiliency displayed by many so-called late savers that I have the privilege of working with on a regular basis. It may not feel like it at a time when financial stressors are still fresh in our minds but some small steps now can yield big differences during retirement.