A digest of timely information and insight about finance, investing, and retirement.
If you’ve been following the Olympics in Rio, you know they can teach us a lot about just how far the combination of intense competition and a fierce drive to excel can push the boundaries of athletic achievement. But they also impart a number of broader lessons that apply beyond the world of sports, including three that can improve your odds of success in planning for retirement.
Everyone knows that retirement is an iffy proposition in the U.S. Most companies that offer 401k plans “match” a small portion of what you put in. Even if you contribute the maximum allowed under federal tax laws and your company matches part of that, you’re still subject to the vagaries of things like the stock market. The risk is all yours. But about 30 million of the 113 million people working in private industry in the U.S. are still covered by pension plans. If you can get a job at one of the companies that still offer defined-benefit pension plans, and work for the company long enough, they will pay you a certain amount every month for the rest of your life when you retire. [Read more about how Colorado PERA’s hybrid defined benefit plan is both efficient and effective.]
The average couple retiring today at age 65 will need $260,000 to cover medical costs in retirement, according to an annual estimate by Fidelity. The figure shows you don’t need to be particularly sick to rack up huge medical bills over decades in retirement. Last year’s estimate was $245,000. The 6 percent increase falls within the typical range for health care costs, which historically have risen faster than overall inflation. The pace of growth slowed during the recession but has since rebounded.
At any given moment, some 60 million Americans, about half of the private-sector employees in the U.S., do not have any type of employer-sponsored retirement plan. The result is a growing American underclass, in which a third of current retirees live almost entire on Social Security and fully half of future retires will face reduced standards of living. Yet Congress and the financial industry have been unable or unwilling to design or support low-cost retirement savings plans. But retirement prospects are about to improve for the 6.8 million employees without retirement coverage who work in California for businesses with five or more workers. The California Legislature is set to vote on a plan to automatically enroll most uncovered workers in individual retirement savings accounts.
A report from TD Ameritrade last year found that 20 percent of millennials have to support an aging parent. And more than 40 million Americans are caregivers to someone over 65, according to Pew Research. But this support can have a drastic impact on someone’s own savings, leading to retirement troubles down the line. Keeping their own retirement on track requires a level of planning from adult children.
Many of us dream every day about retiring from that 9-to-5 and starting a business. It makes perfect sense for the baby boomers who have redefined retirement. A report by the Kauffman Foundation, “The State of Entrepreneurship,” says baby boomers are in the best position to start new businesses, and they will be an economic force for years to come. But although starting a new business, especially in retirement, can be one of the most exhilarating experiences in your life, it must be done with a lot of planning and foresight. Otherwise, you might run through your retirement savings and be forced back to work at a time you least want to do that.