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Too many people believe the lie that they should be able to retire after 40 years of work without actually pulling out a calculator or looking at the data. And when those people reach retirement and can barely survive on their Social Security checks, they become stressed, angry, and hopeless.
Needless to say, many Americans are on the brink of retirement, and a lack of planning (or a lack of planning for your family) could mean you're the next to walk down this dark path in life. Older Americans still have mortgages, car loans, and parent-plus loans, and many believe the government (or their adult children) will swoop in and save them.
If you want to blame something for this harsh reality, you can point to inflation, rising housing costs, prohibitively high medical costs, rising interest rates, government mismanagement, and corporate greed, to name just a few. can. It was cathartic. Now that you've got that out of your system, let's look at the one element you can control in this whole mess: you.
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Here's a tough pill to swallow: It is your responsibility to retire on good terms. No one cares about your financial future more than you. So let's talk about how to set yourself up for success in retirement, no matter your age.
Social Security Blanket Isn't Comfortable
It's no surprise that 54% of workers haven't even calculated how much they'll need in retirement. And by 2034, for the first time in U.S. history, there will be more adults 65 and older than children 18 and under, according to the U.S. Census Bureau. That means more people will drop out of Social Security and fewer people will contribute to it. If Congress doesn't make some changes soon, Social Security funding will begin to dry up. And by 2035, individuals will only receive 83% of their benefits3. I mean, who knows what Social Security will look like by the time my 1-year-old gets ready to retire?
There's another fact. Although Social Security was only intended to replace 40% of income, about a quarter of people rely on Social Security for 90% or more. According to the Social Security Administration, the average payment as of August 2024 was $1,784 per month. By comparison, the average monthly after-tax income for Americans is $4,547.50. If this flimsy Social Security check is your last resort, you'll be eating rice and beans for the rest of your life. This diet is great when getting out of debt, but I can assure you, it gets old quickly.
Sen. Bernie Sanders: Our retirement system is a disaster for working people. can be solved
And to the younger generation: Your parents' problem of relying solely on Social Security can quickly become your financial problem if you're not prepared for retirement. If you are in a place where you can help them and you want to, that's great. But if you can't financially support them, that's okay. It is more important to set yourself up for success in retirement first. You may be the first in your family to break out of a cycle of bankruptcy that continues for generations.
Calculating how much money you need in retirement is a very personal decision, as it depends on a variety of factors, including your health, location, cost of living, inflation, and lifestyle.
How to retire successfully
Let me be clear. No matter your age, you can retire with dignity (and a healthy nest egg). Even if you're a 40-year-old with less than a dime in your 401(k), you can retire a millionaire at age 67 (assuming an average annual interest rate of 10%) if you start consistently contributing money to your account. That would set you back about $650 per month (to be exact). If your current income doesn't allow you to do that, you'll need to find ways to reduce your expenses and increase your income in order to create margin for investment.
Calculating how much money you need in retirement is a very personal decision, as it depends on a variety of factors, including your health, location, cost of living, inflation, and lifestyle. Here are some tips: You need assets and investments to generate enough income to cover all your expenses.
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If you're nearing retirement and still have consumer debt, the first thing you should do is pay off your debt. These debt payments take away the ability to invest and build wealth. I went from penniless to millionaire in less than 10 years using Ramsey Baby Steps, and you can too. The first few steps are: Start by saving $1,000 in your Starter Emergency Fund. It's really easy. Then commit to getting out of consumer debt using the debt snowball method. Once you overcome that, save up a fully funded emergency fund (3-6 months worth of expenses). At this point, you are ready to invest 15% of your total household income into a retirement account.
The sooner you can invest 15% consistently, the sooner compound growth will take effect and the more money you can generate. Here's an example using the median household income of $80,610. Let's say you're 40 years old, have $0 in retirement savings, and start investing 15% of your income in mutual funds within your 401(k). This equates to approximately $12,000 per year or $1,000 per month. Assuming an average annual return of 10% (which has historically been the average annual return for the S&P 500), by age 63 you'll have more than $1 million in that account. If you keep going until you're 67, you'll have more than $1.6 million. That's if you started at age 40 with zero retirement benefits, never received a raise, and never matched with an employer. Are you sure you don't need to go bankrupt right now?
Remember, retirement is a financial number, not an age.
If your loved one wants to retire soon, but the numbers don't look very promising, it's time to have an uncomfortable (but important) conversation about the future. It may not be viable, sustainable, or healthy for you to fund gaps due to someone else's lack of planning. The key here is to approach these conversations with love and start them as soon as possible.
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And remember, retirement is a financial number, not an age. You retire when your assets and investments generate enough income to cover your expenses. It's wise to work with a financial advisor who can help you understand what these numbers should be to reach your goals.
Don't leave your retirement life up to chance (or worse, the government). Don't underestimate the power of time, consistent habits, and compound growth. And most importantly, don't underestimate yourself.
