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The Retirement Crisis Is Real

by Bruce Haring

Most of the Baby Boomer generation is currently either at or near retirement age. Due to their sheer numbers (the largest generation currently living in America, except for Millennials), this means the biggest instance of people exiting the workforce en masse that our nation has ever seen. What will they do? How will they support themselves?

Some people have postulated that the 401(k), having replaced the traditional pension, is enough to provide retirees with the income they need to sustain them in their golden years. However, most experts agree that this isn’t the case. The retirement crisis is very real, and if you’re not ready for it, it could destroy you.

Working Past Retirement Age

On the surface, things look OK for the baby boomers. Average income for people over 65 has been steadily increasing for decades, which indicates more money to live on, not less. However, these numbers are largely due to more people continuing to work long past retirement age in order to support themselves.

If you want to remain at your job or switch to a new one, part or full time, then you’ll have an easier time making ends meet during your golden years. However, for many people, this isn’t an option. As they get older, they’re no longer able to do the work they once could. What’s more, due to their age, it’s often more difficult to find steady employment, in their field or any other that pays a living wage.

The End of Social Security

For those who do, in fact, need to leave work, maintaining an income is increasingly difficult, for a number of reasons. First of all, social security is being depleted. Retirement age has been raised from 65 to 66 and will soon likely go to 67, to reduce the number of benefits that the government needs to pay out.

Even so, without a major overhaul of the system, experts project that the fund will be depleted by 2034. Payouts will then be greatly reduced, as the money coming in from month to month will be all there is left.

Problems with Retirement Income

What about people with retirement plans, though? They have a bit of a cushion, but in the end, they’re going to be in trouble as well. The shift from pensions to 401(k)s has caused a number of financial issues. First of all, these defined-contribution plans don’t pay out as much money. They also put all investment risks on the retiree, rather than on the employer. As a result, they need to save significantly more money than before, in order to make up for this.

At the same time, average life spans are increasing, which requires the fund to last longer. Not to mention the fact that most people underestimate the amount of time they’re going to live post-retirement and don’t save up enough. Finally, interest rates are lower, which means reduced returns.

All of this combines to create an uphill battle for anyone saving for retirement. They need to put together larger saving in a time when payouts are smaller and risks are higher. Because of this, a lot of seniors find their funds running out much more quickly than they anticipated and are left without enough to make ends meet.

Combatting the Retirement Crisis

The good news is, now that you understand the retirement crisis, you can arm yourself against it, rather than being caught unawares. To start with, consult with an actuary, to give yourself a good idea of just how long you’ll live after leaving work—i.e. how long you’ll need your fund to last—and plan your contributions accordingly. By investing in a safe haven, you can also protect yourself against the risks that 401(k)s typically carry with them, guarding against inflation and ensuring that your savings maintain its value over time.

The retirement crisis is definitely real. If you’re not careful, you could end up with no savings, unable to work, with nothing to live on. However, with a bit of pre-planning, you can protect yourself from these dangers and, once you retire, live comfortably for years to come.

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