Americans are living longer than ever. That means a decades-long retirement isn’t out of the question for many of us. And, of course, we want to maintain our existing standard of living and fill those “golden years” with good food, trips to exotic locations, visits with our loved ones, and much more.
The ideal retirement looks different for each of us. But, no matter what our plans are, we need a nest egg that allows us to live comfortably, have some fun and pay for any medical expenses that crop up—which they will at some point.
Since we can’t just snap our fingers and create an instant nest egg, it’s not surprising that the subject of retirement is stressful for many people.
In fact, a new survey by the Indexed Annuity Leadership Council (IALC) shows that nearly 50% of us are afraid of outliving our income or being unable to maintain our current lifestyle.
In addition, almost 20% of Americans worry about covering health care expenses. We’re also concerned about not getting enough Social Security income and not having enough money to travel.
With retirement fears being top of mind for many Americans—and, in many instances, keeping us awake at night—it should be safe to assume that everyone is taking the proper steps to ensure a secure financial future.
But, shockingly, that isn’t the case.Believe it or not, some of us spend more time planning a week-long vacation than planning for our retirement.
The Survey Says…
The IALC survey found that 1 in 4 Baby Boomers, the age group closest to retirement, have less than $5,000 saved for their “golden years.” Here are a few more head-scratching facts uncovered by the survey:
- 1 in 5 Americans doesn’t know how much they’ve saved
- Nearly 55% of Millennials (those between the ages of 19 and 35) have less than $5,000 saved for retirement
- 19% of Gen Xers (ages 36 to 51) have nothing saved for retirement, while another 7% have less than $5,000 saved
- 13% of individuals 71 and older—who should already be several years into retirement—have less than $5,000 in savings
Now, here’s a more promising statistic. Nearly half of all the survey respondents are interested in learning about products like Fixed Index Annuities (FIAs). An FIA uses a unique formula to calculate annual interest based on the performance of a stock, bond or commodity index.
While the index is used as a benchmark, you don’t actually invest in it—FIAs do not directly participate in any stock or equity investments – which can offer balance to your retirement portfolio.
This means the value of your money won’t decline as long as it’s in the annuity as long as you don’t withdraw money from it during the surrender period.Guarantees are dependent upon the claims-paying ability of the issuing company.
Because they are meant for long-term accumulation, most annuities have surrender charges that are assessed during the early years of the contract if money is withdrawn.
But, it offers growth potential because the interest credited to the annuity can increase with a rising index. Once interest is credited, it can’t be lost due to rate adjustments or negative market fluctuations.
And since FIAs don’t have an annual contribution cap when purchased with after-tax dollars, you can contribute as much as you want. FIAs are tax-deferred, meaning the interest you earn isn’t taxed until you take the money out in retirement.
When you do withdraw the money, the earnings are taxed as ordinary income. Withdrawals prior to age 59 ½ may be subject to a 10% Federal Tax Penalty. Annuities also give you the option to turn your accumulated value into an income stream that pays as long as you live. There’s lots of good information online.
We’ve talked to a number of people who’ve chosen to include an FIA in their retirement plan. They tell us how that decision has taken away their worries and lets them sleep better at night knowing they are making progress towards their retirement plans.
It gives them the flexibility to do the things they love, such as travel, spend time with family and friends, and help out with their grandchildren’s education. Check out a few testimonials on the IALC website.
I also urge you to explore the Changing Face of Retirement. This project shines a much-needed spotlight on the modern-day retirement experience.
It provides a realistic perspective by focusing on both the haves and the have-nots and truly shows how important it is for each of us to take retirement planning into our own hands.
7 Simple Steps
The uncertainty of knowing if your retirement funds are enough to cover your entire life can be upsetting. But, as I mentioned earlier, FIAs are definitely something to consider.
And whether you’re a Millennial, a Baby Boomer, or fall somewhere in between, there are a number of simple steps you can take to create some financial peace of mind:
- Budgets are your friend—Did you know that you’ll likely save three times more if you plan for retirement?Creating a realistic budget is an important part of the planning process. Make sure you factor in that expenses could increase later in life, especially for things like health care and travel. Plus, it’s important to adjust your budget as circumstances change, particularly for things that could impact how much you’ll need to support your lifestyle.
- Take advantage of free money—Does your employer offer a 401(k)? If so, sign up today and set a goal to increase your contribution each year until you reach the maximum contribution allowed. This instantly increases the amount of money going toward your retirement savings. And if your employer matches contributions—either in whole or in part—that’s free money. If you’re self-employed or run a small business, talk to your tax advisor about whether a Simplified Employee Pension Individual Retirement Account or SEP IRA makes sense for your business.
- Balance, balance and more balance—Investing in a 401(k) or SEP IRA is always a good idea, but make sure you don’t “put all your eggs in one basket.” An easy way to balance out your retirement portfolio is through conservative products such as FIAs that protect your principal even if the market fluctuates.
- Adjustments are important—Today’s financial strategy may not work in five years, let alone 10, 20 or 30 years down the road. A marriage or divorce, career switch, health crisis, or a volatile stock market can change how much you’re saving and even how much you’ll need for retirement. Flexibility is key. Your risk level should probably go down as time goes on since it’s harder to tolerate large dips in your account balances if you’re only a few years from retirement.
- Check yourstatements—Theolder you get, the more important it is to keep track of how much is in your account and how it’s being invested. With online banking, it’s easier than ever to stay on top of your finances and make changes as necessary. When it comes to financial matters, “snail mail” is definitely not the way to go.
- Every change counts—If you’re not saving much right now, there are simple things you can do to reverse that trend. For example, bring a lunch to work three or four times a week instead of eating out and deposit that money into a retirement account. Paying your credit card bills on time instead of carrying a balance is another great way to save.
- Make a schedule and stick with it—Set up automatic monthly transfers into a retirement account so you don’t spend the money instead. And if you’re too heavily in debt to do that, a financial advisor can help you figure things out.
It doesn’t matter whether you’re 35 or 60. It doesn’t matter whether you live in a large city like Boston, Chicago or Los Angeles, or a small town like Stowe, VT, Jackson, WY, or even Sitka, AK. You’re going to stop working at some point, and it’s important to make sure you have enough money saved for a comfortable retirement.
It’s never too late—or too early—to start. Look into FIAs or other similar options. Talk to a financial advisor. Follow the seven simple steps listed above. Whatever you do, just make sure you’re planning today for your retirement tomorrow.
About the Author: Jim Poolman is Executive Director of the Indexed Annuity Leadership Council, a consortium of life insurance organizations that provides complete and factual information about fixed indexed annuities. He previously served two terms as North Dakota’s Insurance Commissioner, working to strengthen laws to protect citizens against insurance fraud, and served four terms in the North Dakota House of Representatives.