You wouldn’t run toward a cliff without a parachute. Yet, you’re probably heading down the road toward retirement without sufficient money saved up to help you get through your golden years. According to the United States Department of Labor, less than half of America’s citizens have taken the time to figure out, let alone save up the amount of money they will need for their retirement, which is typically about 20 years in length.
Social Security Not So Secure
Most financial advisors today will warn you that if you’re under 40, you should not count on social security to bail you out. According to the Wall Street Journal, the funds in the Old-Age and Survivors Insurance and the Disability Insurance trust funds will run out in 2033. What this means for those younger than 40 is a reduced benefit, probably 70% to 75% of what they were originally projected to get. In the past, social security payments were considered an important part of your retirement plan — not so much anymore.
- You are never too young to start saving up for your retirement. Consider how you spend your money today and begin setting aside funds for your retirement, even if you’re only in your 20s. Do you really need the latest smartphone or an expensive car when the money you’ll spend could possibly be funds you’ll need to retire on? According to investment website, Motley Fool, approximately 20% of Americans believe that they will have to work well into their 70s and possibly 80s, because they will not have saved enough money to retire.
- Compounding is your friend: With just an annual return of 7%, any money you save up should double about every ten years.
- For one reason or another, you might some day end up with a large sum of money. For example, you could win an insurance claim or a lawsuit or even be lucky enough to win the lotto. While some people will take their windfall in a lump sum, others will opt or — in the case of a lawsuit — be made to take their funds in annuity payments. Some people will also buy insurance annuities as an investment.
- If you prefer to get your structured settlement in one lump sum or didn’t have the option at the time of the award and would like to get all of your money now, you could always consider selling annuity payments to institutions that specialize in buying these. You could then put your funds into an investment vehicle that could bring you a higher return, possibly with a hedge fund manager utilizing Liquid Holdings Group’s innovative technologies.
- Diversify your investments. Do not put all of your eggs in one basket. You should have at least some money in a safe account, such as a certificate of deposit. Time also recommends that you keep money in the stock market, which will theoretically give you a better return than having your money sitting idly in a savings account, not working for you. Even with all its downturns, the S&P 500 has not had a negative total return during a 20-year period.
- If your employer offers a 401(k) plan, make sure to sign up and contribute as much as you can to it, as the Department of Labor suggests.
Check out this video by Northwestern Mutual for more information: