Social Security plays an important role in many people's retirements. But seniors who rely on those benefits too heavily tend to struggle financially.
Among seniors aged 65 and over, Social Security represents 90% or more of retirement income for 12% of men and 15% of women. But even when those benefits comprise a smaller percentage of total income, seniors can struggle nonetheless.
In fact, more than 16.5 million seniors aged 65 and over are economically insecure, with incomes below 200% of the federal poverty level, according to the National Council on Aging. And if that's a fate you'd like to avoid, then the solution could boil down to funding a retirement savings plan consistently while you're working.
Small contributions can go a long way
Many people neglect their retirement savings because they have other expenses, like their car payments and mortgage loan payments, monopolizing their incomes. But if you don't make an effort to fund an IRA or 401(k) plan, you might end up struggling financially once you're retired and are no longer collecting a paycheck from a job.
Of course, the idea of having to fund a retirement plan can be intimidating. But one thing you should realize is that if you start saving for retirement at a fairly young age, and you make consistent contributions to your savings, you can grow a lot of wealth over time without having to part with a whole lot of money on a monthly basis.
In fact, let's say you're able to save $150 a month for retirement. And let's say you do so beginning at age 30 all the way up until age 65, at which point you decide you'd like to retire.
The stock market has, over the past 50 years, delivered an average annual 10% return before inflation, based on the performance of the S&P 500 index. If your IRA or 401(k) plan delivers that same return, then based on your savings window and monthly contributions, you stand to retire with about $488,000. That sort of nest egg, combined with some income from Social Security, could make for the comfortable retirement you deserve.
Don't force yourself to play catch-up
It's easy to let retirement savings fall by the wayside when you're younger and aren't so focused on your senior years. But if you don't start funding an IRA or 401(k) plan from a young age, you might end up in a situation where you're forced to scramble later on in your career and part with lots of money on a monthly basis just to have a shot at a decent-sized nest egg.
Instead of landing in that boat, or, worse yet, ending up economically insecure like more than 16.5 million seniors today, commit to funding your IRA or 401(k) as soon as you're able to, and make a point to invest that money rather than let it just sit in cash. You may end up very pleased with the amount of wealth you're able to grow over time.
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June 22, 2023 at 09:00PM
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