Saving for Retirement: It’s Not Too Late

As we work through our lifetimes, it is important to set aside funds for the future. Retirement planning is a critical part of adult life, yet far too few Americans take this aspect seriously. Numerous surveys and financial studies have indicated that on average, Americans are woefully underprepared for their life after retirement. Most of us have heard the expression “it’s never too early to start saving for retirement”, but what does that mean for older people who may not have started the retirement planning process?

There’s good news for those approaching their retirement years – it’s not too late to set aside funds for the future, and in this guide, we’ll illustrate the best ways you can help to ensure a comfortable, stable, and healthy financial future.

Retirement Planning Shortfalls: The Numbers

Before we talk about making up for lost time in retirement savings, it can be useful to understand the numbers behind Americans’ retirement shortfalls. In short, Americans aren’t saving enough. In a study conducted by Northwestern Mutual in 2018, it was shown that almost a third of all American workers have saved less than $5000 for retirement purposes. Another survey conducted by a popular online banking resource suggests that 19% of Americans do not save any of their annual income, and over 65% of survey respondents save 10% or less of their annual income. These are dismal figures, and have financial analysts worried about the health and welfare of the American workforce.

Some of this failure to save can be attributed to the misguided belief that government-sponsored benefits will be enough to live on. Federal benefits like Social Security, Medicare, and pension plans are believed to provide all the funding we need after we retire. The sobering truth is that these benefits are simply not enough. Here is a closer look at why government benefits don’t do enough to protect our financial futures:

  • The average Social Security benefit is just over $1400 per month. Multiply that by 12 and we arrive at a figure around $17,000 in annual retirement income.
  • The maximum retirement benefit under the Social Security program is based on the age in which one files for the benefit. Assuming you reach the age of 66, or the “full retirement age”, the maximum benefit is $2639 per month.
  • Average benefits over a lifetime in the Medicare program come out to about $180,000. That may sound like a lot, but these benefits are paid over a number of years – sometimes 20 or more.

With these numbers in mind, it is clear that we must do more to protect our financial futures. Government benefits will not provide the income we need to pay for expenses after we retire.

A Brighter Picture: Time is on Your Side

It goes without saying that starting the savings process early can help to ensure a brighter financial future. The best place to start is by participating in an employer’s retirement plan, such as a 401(k). Contribute to the maximum allowed by the plan each year – some employers even offer matching fund contributions for every dollar you put into the plan – and let the power of compounding interest help you to accumulate wealth for your retirement.

If your employer doesn’t offer such a plan, another good way to get started on your savings is to establish an Individual Retirement Account, or IRA. There are many types of IRA, but the most common are Traditional and Roth IRAs. Each offer significant benefits; the Traditional IRA is tax-deferred until you begin to withdraw money after retirement, while the Roth IRA grows tax-free and does not require tax payments after withdrawals are made. Each uses compounding interest to accumulate value. The more you contribute (up to limits set by federal regulations), the more it can grow. Even if you start young and contribute to the maximum allowed for ten years, then do nothing else, compounding interest means that you’ll have a sizeable chunk of cash waiting for you when you retire – a million dollars or even more!

Nearing Retirement Age? Don’t Lose Hope

Even if you have waited to start saving until you’re late in your career, all is not lost. There are solutions available for those who have put off retirement savings. For those in their 50s and 60s, one quick way of boosting retirement savings is to consider downsizing your home. Selling your primary residence and purchasing something smaller can net considerable income, which can then be used to bolster your retirement plans. Cashing in company stock options or other investment products can also substantially cover any shortfalls in your retirement savings plans. If you are in your 60s, have a savings shortfall, and haven’t yet done so, NOW is the time to speak to a financial planner. He or she can help you discover ways of monetizing any assets you may have acquired over your career.

Covering savings shortfalls can be complex, but another solution has emerged that is surprisingly low-risk and has a guaranteed payout. This solution is known as an annuity. Annuities are insurance products backed by an insurance company that pay out an income, and remain a popular choice for investors who wish to receive a steady stream of income in their retirement years. The way an annuity works is that the investor chooses an annuity product, then invests in it with premiums, or payments spaced out over a certain period of time. Depending on the setup and type of annuity, it then makes payments in the future, depending on the language in the annuity contract.

Income payments may be chosen to be distributed monthly, quarterly, annually, or even in a lump sum if desired. The size of the income payments depends on the amount originally invested, the account value’s growth, and the length of time premium payments were made into the annuity.

It’s never too early or too late to get ready for your retirement years. Speak to a retirement planning professional as soon as possible to map out a savings strategy that can help you to achieve your financial goals now and long after you retire.


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