(BPT) - As the ongoing coronavirus pandemic continues to present health and economic challenges, it is difficult to focus on anything other than the present. It's important, though, not to lose sight of the years ahead and to take steps that can put you in a better position when we emerge on the other side.
The youngest baby boomers - the generation born between 1944 and 1964 - turned 55 last year. This, coupled with the uncertain job picture, means many of us are thinking more seriously about what we will need to successfully retire.
In the past, the years leading up to retirement have been a time of hope and optimism. We've looked forward to fulfilling our dreams of doing the things we might have missed while working, such as dedicating more time to family and friends, checking items off a bucket list, or even pursuing a meaningful second career.
However, many of the traditional assumptions about this phase of life have been challenged over the past decade, including the idea that we'll retire at 65. In fact, MetLife's Evolving Retirement Model Study found nearly one in 10 workers (9%) never expect to retire. Many of us are choosing to continue working and, in light of the current situation, some who have already retired, especially those in health care, are even being asked to return to work.
What's behind this change? It turns out that it's more than just the current market volatility. Perhaps one of the most significant reasons is the decline in company-financed pensions. Many companies have shifted from defined benefit, or pension, plans, which promise retirees a monthly income benefit for life, to defined contribution (DC) plans. DC plans, such as 401(k)s, are the main source of retirement savings for most workers.
While employers often make contributions to these plans, workers are primarily responsible for their retirement security. With this in mind, there are three key steps you can take now to prepare for the years after you finish working regardless of whether that day is decades away or just over the horizon.
1. Create a plan to eliminate debt.
Whether you carry a balance on a credit card, have student loans or a mortgage, start paying off your debts now. Reducing your monthly expenses not only allows you to save more for retirement, but also gives you more flexibility with how you spend money after you stop working.
2. Make retirement savings automatic, and don't miss out on 'free money.'
Many employers offer a retirement savings plan, such as a 401(k), to their employees. The sooner you begin saving, the sooner your savings can begin to build up over time. Help your nest egg grow even faster by contributing enough to take full advantage of any matching contributions your employer offers. For example, your company might match 100% of your contribution, up to 6% of your salary. In other words, if you earn $50,000 a year and save at least $3,000, your company will match that amount by contributing $3,000 to your retirement as well.
3. Understand how your retirement savings translates into income.
Take the time during your working years to understand how much income you might receive in retirement based on your retirement savings. The U.S. Department of Labor offers a simple retirement income projection tool that can help you get started. If you see that projections are falling short of where you think you might need them to be, consider filling the gap by increasing the amount you are saving. Additionally, if you are over the age of 50, you can make catch-up contributions to your 401(k) or individual retirement account.
MetLife's Study also asked workers and retirees the age of the oldest person they know. On average, that person is almost 85 years old, and 45% of survey participants believe they'll live that long too. Many of us can, therefore, expect to live 20 years - or more - in retirement, and we'll need our savings to last. The question is: Will we be able to enjoy a comfortable and secure retirement, especially during periods of market turmoil like we are experiencing now?
Having a predictable income can make a big difference and fortunately relief may be in sight. While many employers don't yet offer guaranteed retirement income options in their 401(k) plans, a new law passed at the end of 2019 could change this. That's good news, considering that 95% of workers and retirees say it's important for retirees to have a source of guaranteed retirement income they cannot outlive.
MetLife's Study was conducted online with 1,518 U.S. adults ages 33-75 who are either employed full time or retired and have access to a defined benefit or defined contribution plan through their current employer or the employer from which they retired. Data were weighted, where necessary, to align with actual population proportions. The Study was conducted by The Harris Poll between Aug. 19 and Sept. 6, 2019.