40% of pre-retirees will have to reduce their lifestyle [SPOOKY!]
This should spook the living daylights out of you and make your blood curdle: A new study by the Wall Street Journal confirms that many Americans will have to trade their "golden years" for a retirement filled with scrimping and sacrifice.
As pension plans that provide a guaranteed income for life disappeared, 401(k)s, 403(b)s, IRAs and similar government and employer-sponsored plans replaced them.
It's an experiment that has failed many. According to theWall Street Journal, for Americans approaching retirement age…
"Their median incomes, including Social Security and retirement fund receipts, haven't risen in years, they have high debt, are often paying off children's educations and are dipping into savings for aging parents.
"Theirpaltry 401(k) retirement funds will bring in a median income of under $8,000 a yearfor a household of two."
(Read why the "father of the 401(k)" says it should be destroyed, and why he now puts most of his money into Bank On Yourself plans.)
What Does a Reduced Lifestyle in Retirement Look Like?
It's not pretty. You may have to work multiple low-wage jobs, give up things you now consider necessities, skip vacations and even haircuts. You may have to appeal to your children to help out.
A "combination of economic and demographic forces has left older Americans with bigger bills and less money to pay them."
Market crashes, gains in life expectancy, plus the soaring price of education, have left many in their 50s and 60s supporting adult children and older relatives. Increasing health care costs have caused many to cut back on saving for retirement.
So what can you do about this?
The 6-Step Plan to Protect Yourself from this Mess
If you are one of the many people who are approaching retirement age with insufficient savings – or you're relying on Social Security or a pension for retirement income – here is a 6-step plan to help you get back on track:
Step 1:Don't put your head in the sand – that won't make the problem go away.
Step 2:When calculating how much you'll need in retirement, use the currently recommended savings withdrawal rate of 2.8%, and assume you'll live to at least age 95 because there's a good chance you or your partner will.
Step 3:Don't rely too much on volatile, unpredictable government-sponsored retirement accounts for income in retirement. If you don't know the minimum guaranteed value of your savings when you want to tap into them,you don't have a plan– you're gambling.
Step 4:Don't rely too much on Social Security or a public pension fund, for the reasons discussed above.
Step 5:Save more in guaranteed, safe and liquid financial vehicles. The wealth-building strategy I use allows you to know the guaranteed minimum value of your plan at any given point in time.
These plans have grown in value everysingle year for more than 160 years and have never had a losing or stagnant year. They do not go backward when the market crashes. And you can sleep like a baby when the stock market is crashing.
Step 6:Find out how adding our unique strategy to your financial plan can help you enjoy the financial security you deserve by requesting your free Analysis, if you haven't already.
Your Federal Benefit Check
The Social Security check is now referred to as a "Federal Benefit Payment?" This isn't a benefit. It is your money paid out of your earned income! Not only did we all contribute to Social Security but our employers did too. It totaled 15% of our income before taxes.
If you averaged $30K per year over your working life, that's close to $180,000 invested in Social Security. If you calculate the future value of your monthly investment in social security ($375/month, including both you and your employers contributions) at a meager 1% interest rate compounded monthly, after 40 years of working you'd have more than $1.3+ million dollars saved!
This is your personal investment. Upon retirement, if you took out only 3% per year, you'd receive $39,318 per year, or $3,277 per month. That's almost three times more than today's average Social Security benefit of $1,230 per month, according to the Social Security Administration. (Google it – it’s a fact). And your retirement fund would last more than 33 years (until you're 98 if you retire at age 65)!
Instead, the folks in Washington pulled off a bigger "Ponzi scheme" than Bernie Madoff ever did. They took our money and used it elsewhere. They forgot (oh yes, they knew) that it was OUR money they were taking. They didn't have a referendum to ask us if we wanted to lend the money to them. And they didn't pay interest on the debt they assumed. And recently they've told us that the money won't support us for very much longer.
Plus, your social security is now called a tax and then when you start receiving it, you will most likely be taxed on up to 85% of it for most people.
I take great pride in teaching and coaching people how to build wealth that isn't taxable at a future tax rate and how they can avoid paying tax on their future social security.
3 Ways You Might Be Sabotaging Your Retirement Plans
1. You aren't pushing yourself hard enough to save.
The problem isn't that we don't have a decent sense of how much we should be putting away for retirement. For the most part we do. For example, when the Employee Benefit Research Institute asked what percentage of their salaries workers should be saving annually in order to live comfortably throughout retirement, the median estimate was 16%. That's right in line with the 15% or so savings rate that many retirement experts recommend. But too many people are falling far short of that goal. When asked in the same survey how much they were actually saving, workers' median estimate was just 10%. Granted, some people simply may not earn enough to allow them to save 15%, or even 10%, a year for retirement. But for many of us it's more an issue of finding the will and the discipline to save consistently.
2. You have too-rosy expectations about what your retirement investments will earn.
Many retirement savers believe that their investments will keep having up years and will make them more than the estimates. However, history doesn’t bear that to be true. The real averages are always lower than most guess. Plus, few savers figure in taxes to their second half life computations. As we discuss on this site all the time, it doesn’t matter what the market or real estate does if you don’t know what the future tax rate or market will do. Your rate of distribution is way more important than your rate of return.
3. You're too optimistic about how long you'll be able to stay on the job.
Nearly 40% of workers said they don't plan to retire until after age 65 — more than four times as many as 20 years ago — and nearly three-quarters of employed adults plan to work when they reach their retirement age rather than retire altogether, according to a recent Gallup poll. There's no doubt that a longer career and working after you retire can dramatically improve your retirement prospects. After all, more time on job gives you more time to contribute to your retirement savings. And the income you earn by taking on a gig after you retire can reduce the amount you must withdraw from your nest egg, allowing it to support you longer than it otherwise could. But assuming you'll be able to remain in the workforce longer or work after calling it a career (or do both) may be unrealistic. Figures from EBRI's Retirement Confidence Survey show that a large percentage of workers (48% this year) say they retired earlier than they'd planned, often due to reasons beyond their control, such as a health problem, downsizing at work, or having to care for a spouse or other family member. As for the claim heard in the Gallup poll and many other surveys that workers plan to work in some way during retirement, well, that assumption may be a bit iffy too. Only 29% of current retirees report that they've ever worked for pay since they retired, according to EBRI.
Do you think taxes will go down in retirement?
Congress claims they don’t want to raise taxes. So what happens? Stealth taxes are created. The tax on Social Security benefits is just one of many examples. Prior to 1983 there were no taxes on Social Security. If a couple’s income is greater than $44,000 up to 85% of the benefits are taxed. The $44,000 threshold is not tied to inflation. The amount is the same today as it was in 1993 which is 23 years ago. Simply put, more and more people are hit with this tax each year. Plus, the IRS estimates that 75% of retirees are in the highest tax bracket of their life due to less tax deductions.
Are you aware of the biggest retirement mistakes?
Many people are unaware of the actual cost of their after tax lifestyle expenses. We have been conditioned to believe that our lifestyle needs will decrease in our golden years. That might be true when you reach your 80’s but it may not hold water in your early retirement years. In fact, most young retirees desire a lifestyle equal to or better than their working years.
Do your grown children need some help financially?
If you do not want to make it a gift, you should consider using your cash value inside your permanent life insurance policy. Why? There are several reasons. You won’t lose the compounding of the cash value. You borrow the money from the insurance company using the cash value as collateral. It remains uninterrupted if the loan is repaid in full with interest. You can structure the loan to fit your situation. There is no time frame for repayment. No one will be calling you or your kids from if a repayment is missed. Your children can make the payment directly to the insurance company on your behalf. No application is required and no approval process is necessary. The loan request is handled by a phone call or a one-page application.
Are you thinking about making a major capital purchase in the future?
Don’t forget to look at the backside of the coin. Many Americans only consider the negative feature of paying interest and elect to pay cash for the purchase. What is often overlooked is the important fact that you finance everything you buy. If you pay cash, you lose the ability to earn interest and access to money. A wealth creator is one who utilizes the most efficient strategy and is willing to look at both sides of the coin.