The endpoint of a fulfilling career is a relaxing and comfortable pension. Unfortunately, for nearly a third of Americans, that dream is out of reach. New figures analyzed by CNBC indicate that 41% of Americans do not earn or save enough to retire comfortably, even with 50 years of earnings ahead of them.
With the rising cost of living and burdens being placed on the social welfare budget, this story is becoming all too common, and difficult to avoid. The best advice that anyone in the early stages of their career can take is to plan immediately, and to start taking control of their saving habits while times are good.
It’s important to first note that many pension plans underperform. According to MarketWatch, many standard pension plans have poor quality money managers at their helm which leads to inefficiencies and poor investments. As a result, they estimate that the average pension plan is underfunded by up to $500 per year.
When taking into account the length of a career and the impact of compound interest, that’s a huge loss. The alternative to this, self-directed IRAs, are a powerful way to take control. These IRAs can either be managed independently or through the use of a custodian.
IRA custodial fees are competitive and form part of the decision-making process, but will often be worth it when considering the added ROI from being more aggressive with retirement fund investments.
Several countries, such as the UK, have state-mandated pension plans that require employers to both provide a pot and to contribute to it. While this isn’t the law in the USA, it is a scheme frequently used by employers.
When entering into such a scheme it can be easy to just let it rest, but, as USA Today highlights, many pension schemes are now winding down with many others reducing the overall level of investment. As you can imagine, that means lower overall contributions.
You can counter this by contributing greater amounts of your savings into the pension plan, either privately or through your employer. Ensure that you have your short-term savings goals, such as creating a rainy day fund, paying down debt or saving for a home, covered first.
Look at macroeconomic trends when managing your pension pot. Is inflation up? Have interest rates been hiked? Just as you would manage your mortgage and consider refinancing and investment when the conditions are right for you to benefit, you should consider whether the time is right to change up your retirement plan.
That could mean putting more money into the fund during a period of high interest, just as it could mean retaining your savings during high inflation. The important lesson is to be flexible. Look at where you could increase your savings, even by a nominal amount, and apply yourself to that rigorously.
Your retirement finances are perhaps more important than any other aspect of your finances through life; you won’t get much of a chance to fix them after retirement, and it’s difficult to get back and get earning again as a senior.
For that reason, be dedicated and diligent with your retirement pot. Americans are struggling, and the cost of living is only going to rise. Break the trend, take control of your finances, and secure the comfortable retirement that you have, arguably, earned from a long and oftentimes difficult career.
You’ll thank yourself when you finally retire and relax by the peace of mind that a properly planned retirement provides.