People of a certain age may recall that song that goes, “the future’s so bright, I gotta wear shades.” While many older adults remain optimistic in general, they may be worried that their financial future will be cloudier than expected. After a decade that disrupted careers and savings, Americans approaching retirement in the next ten years face challenges that may require a change in plans.
Low savings for retirement
Running out of money is the number one retirement fear among Americans age 50 years and older. This is a reasonable concern. By age 55, a person making $50,000 a year should have put away about six times his current salary, or $300,000, according to a financial rule of thumb. However, the average 50-something person has saved less than half of that amount. Historically low interest rates have further stymied the growth of savings accounts and other fixed-rate investments.
Boomers born between 1946 and 1955 lost 28 percent of their median net worth during the Great Recession, according to the Pew Charitable Trusts. Those born later lost 25 percent of theirs.
Difficult job market
Many adults with little money saved for retirement have traditionally continued to work after they reach Social Security eligibility age — if they can. Since the recession of 2008, however, millions of people over the age of 55 continue to struggle with finding full-time employment. Companies are hiring younger applicants. Many 55- to 64-year-olds who have found work are earning less than before. This income disruption has shaken up their retirement dreams.
Debts and kids
Older households have doubled down on debt in the past decade. The National Council on Aging says that one-third of them are still paying down a mortgage or home equity loan. Many are also paying student loans — either their own, their children’s, or their grandchildren’s. A study by Pew Research found that 40 percent of older adults have helped their adult children pay their bills. These unexpected debts could have an effect on savings and retirement plans.
Rising health care costs
Americans are worried about not being able to pay for medical care if they have a serious illness or accident, according to a recent Gallup survey. Predicting your long-range medical costs is difficult, if not impossible, but experts project that health care costs for older Americans will increase about 5 percent a year over the next decade. That means paying more for doctor’s visits, prescription drugs, tests, and hospital stays. A 55-year-old couple who files for Social Security benefits at 67 will find a high percentage of their check going toward health expenses.
6 Steps to Prepare for Tomorrow
It’s important to make a plan, no matter how challenging finances may appear. Talk with your partner if you have one. Studies show that couples don’t like talking about finances, but an honest discussion is the first step forward.
Look into savings plans
It’s not too late to bump up your contribution to a 401(k) or IRA — or even start contributing, if you can. Let’s say you have ten more years before retiring. With steady savings and careful budgeting, it’s possible to build a nest egg.
Sift through your monthly bills and daily expenses for items you no longer need. Look for ways to trim your cable or phone bill. Small savings add up.
Take care of your health
Work hard to stay well, and you may reduce your risk of needing expensive medical care later in life. Of course, healthy living can’t prevent all health conditions, but it can improve your chances of avoiding diabetes and heart disease — and saving thousands of dollars in out-of-pocket expenses for treatment.
Get smart about finances
Few of us are financial wizards, so there’s no shame in seeking help. You don’t have to be a millionaire to talk to a financial advisor or certified planner. Take advantage of your local library for practical guides to managing money. Attend a seminar in person or online. Look for workshops and courses taught by certified experts.