Based on a recent MarketWatch article, half of Americans over the age of 55 will retire in poverty or near poverty. 

Economist Teresa Ghilarducci, a professor at The New School in NYC and one of the nation’s leading experts in retirement, said, “Our data is showing that, because of the COVID recession, about 50% of workers over the age of 55 will be poor or near-poor adults when they reach 65.”

 

What happened?

  • Job loss – Older workers are losing their jobs at a faster rate than younger workers.  It will be harder for older workers to find new employment when/if the economy recovers.  
  • Underfunded Retirement – It’s been reported for years that most Americans retirement accounts are underfunded and those Americans will need government assistance and/or take drastic measures to reduce their living costs during retirement years. A large number of Americans are being forced into “early retirement” due to the pandemic, requiring them to start using their retirement savings to live on, thus depleting it even faster. 
  • CARES Act The new law allows Americans affected by the pandemic to withdraw up to $100,000 from their retirement accounts. Usually, there would be a 10% penalty for those under 59 ½ which is waived, and it allows them to pay back the funds over a three year period without it counted as income for tax purposes. 

Unfortunately, the negative impact may be impossible for many to recover from. Some of the long-term effects:

  1. Retirement funds being spent long before they were intended to be. 
  2. Any future growth is now lost because the funds are no longer invested.
  3. A large percentage will not be able to pay the money back and be left with additional tax liabilities.

 

What can you do?

  • Take action NOW – Whether you are in the described situation or perhaps younger with more time to save for retirement, the best time to start is now!  The younger you start planning and saving for your later years the better the odds are for a “golden retirement.” Those who are behind in saving for retirement need to focus now and likely make sacrifices to make up for lost time.
  • Max out tax-advantaged investment vehicles – Investment 101.  Regardless of what you invest in, you are doing yourself a disservice if you do not utilize vehicles that reduce or eliminate taxes.  Accounts from employers like 401ks, 403bs, TSPs, 457s, and Individual Retirement Accounts (IRA) like Traditionals, Roths, SEPs are examples. 
  • Be disciplinedBuilding a successful retirement portfolio takes years. It’s common to think that retirement is too far away to worry about when you’re younger. Almost everybody feels that way until they hit an age when it does matter and regret not starting sooner. Contribute as much as you can yearly and allow the effects of time to work its magic. (compounding interest) 

Aim for Financial Freedom

The word ‘retirement’ has a bit of negative connotation to many. It makes us think about getting older and our mortality.  I suggest mentally replacing the word ‘retirement’ with ‘financial freedom.’  Everyone would love not to have to work OR do what they love without worrying about paying the bills. So instead of thinking about saving for retirement, consider it saving to achieve financial freedom.  The sooner you get there, the more time you get to be free.