Despite a historical bull market, which has seen the major stock indices gain nearly 300% since the 2009 low and accelerated to all time highs since the election, many Americans are falling far short of saving what they’ll need for retirement.
While younger people are saving at rates lower than peers of previous generations they still have time and an increasing set of technological driven tools, from low cost funds to dynamic rebalancing programs, allowing them to leverage their greatest asset; time to catch up.
But for older people in the 50-70 age bracket, the situation is particularly scary. This group has been hit with multiple and confluence of events; many lost high paying jobs during their prime earning years and never got them back, many saw the substantial equity they had built in stock portfolios or their homes get sliced in half and are still clawing back to even, and lastly many were so scared they never got back into the stock market and have been hiding in bonds, earning a measly 2%-3% per year.
But all is not hopeless. It may be a tough climb but there are some steps we can all take. Certainly I am a proponent of using options in an intelligent fashion to help boost returns, especially in the form of income you’ll need for retirement.
A recent article in Marketwatch lays out the challenges and provides some suggestions. You can read the whole thing here:
There’s no easy way to say this: Americans are not saving for their futures.
The numbers for retirement savings already looked discouraging with the average American couple only having put away $5,000, but the situation may be worse: only a third of working Americans are saving money in an employer-sponsored or tax-deferred retirement account, according to U.S. Census Bureau researchers, as reported in Bloomberg. And that’s only if their employers even offer such plans, which, according to this research, only 14% do (and they’re likely large companies).
Over 80% of Americans say they don’t know how much money they’ll need for retirement, according to the final report from a four-year-long study of 50,000 people aged 25 and older, and released this week by Merrill Lynch with aging consultants Age Wave Retirement costs 2.5 times the cost of the average American home, it found.
The median amount of saving for households age 65 to 74 was $148,000, less than three times the median U.S. salary of $55,775, according to 2015 Government Accountability Office report, and far below the required amount that would ensure a comfortable lifestyle. People should have 10 times their current salary by the time they’re 67, according to Fidelity Investments.
To reach that goal, people should start saving 15% of their salary at the tender age of 25 in a retirement savings account that is diversified with more than half of it allocated to stocks, according to Fidelity.
Saving for the future has always been a problem for Americans, but it’s beginning to catch up with them now as life expectancy increases and savings may have to last a lot longer. The consequences of not saving appropriately could be detrimental: women 65 and older, for example, are working more now than they did 20 years ago, mostly because they can’t afford not to do so.
Not only are more women over the age of 65 joining up and living together, but more of them are working. Over 15% of women 65 years and older were working in 2015, up from 8.6% in 1996, according to Department of Labor data.
Women, especially those divorced or unmarried, may find themselves in difficult financial situations as they mature. Others may have faced hardships as a result of the financial crisis in 2008 or because they don’t have enough years in the workforce to qualify for Social Security benefits. In any event, working through it may be their best bet.
“I don’t want to say that they are already impoverished, but they are worried about that,” said Cindy Hounsell, president of the Women’s Institute for a Secure Retirement (WISER). “They are worried about their retirement.”
Women are 80% more likely to end up in poverty at 65 and older, nonprofit research firm National Institute on Retirement Security found. About 9% of these women are at or below the federal poverty line, compared with 5% of men, which is $11,880 for individuals and $16,020 for a family of two.
Many experts urge millennials to take note and begin saving as soon as possible, though many have trouble putting money away for such a distant goal. and struggle to envision themselves as retirees. Younger workers may also question how to balance their paychecks: saving for retirement is important, but some place higher importance on saving for a home or another financial goal, said John Scott, director of the Retirement Savings Project part of Pew Charitable Trusts, a Philadelphia-based nonprofit non-governmental public policy organization.
The financial services industry and government are battling over how to fix this crisis. Some financial firms, organizations and the former Department of Labor staff under President Obama have fought for greater transparency and lower fees for retirement portfolios with the fiduciary rule a law that was supposed to come in April and protect retirement savers from conflicts of interest that cut their future assets.
But critics, which include other large financial firms and financial organizations, argue it restricts products available to investors, and President Trump signed an executive order earlier this month delaying it until the new Department of Labor staff could further review it.
— The Option Specialist