What are Today’s Key Retirement Challenges?

The Bipartisan Policy Center (BPC), a Washington D.C. nonprofit organization, recently conducted research to find solutions to the nation’s biggest challenges when it comes to achieving retirement security.  The six challenges are outlined below, including what steps you can take to address them.

  1. Workplace retirement savings plans

According to the BPC, only 49% of workers participate in a workplace retirement plan, such as a 401(k).  Of those that don’t, many don’t have access to a plan at work and others choose not to contribute.  “The Employee Benefit Research Institute (EBRI) projects that more than half (56 percent) of all moderate-income Gen-Xers who don’t participate in a savings plan at work will run out of money in retirement.  By contrast, the EBRI projects that among workers who save for at least 20 years in a work-based plan, only 12 percent will experience that fate.”  This example presents a pretty compelling case for why it’s so important to participate in such a plan.   If it’s financially difficult for you to contribute, start low, such as 1% of your salary, and then increase it in the future when you can.  If your employer doesn’t offer a plan, open an IRA.  The article also suggests seeing if your employer offers a financial wellness program.

  1. Using retirement account funds for short-term needs

The BPC states that having an emergency fund is just as important as saving for retirement.  If you were to lose your job, have health issues or experience some other unexpected event, the last thing you want to do is tap into your retirement savings or take on debt.  The general rule says that you should have enough saved to support yourself for a couple months, but unfortunately more than half of all Americans don’t have enough saved for a $2,000 emergency.  The BPC suggests setting aside an emergency fund on top of your retirement savings – even if you have to start small and then build up over time.

  1. Outliving your savings

With Americans living longer than ever, retirement could easily last 20-30 years, so it’s important to make sure your funds will last.  The BPC recommends coming up with an income generating strategy that you won’t outlive.  For example, this could mean optimizing your social security benefits, looking into annuities or coming up with a plan for drawing down your portfolio.

  1. Underutilizing home equity

“The BPC report noted that half of all Americans age 62 and older are “home rich, cash poor,” meaning at least half of their net worth is in their home equity.”  If this is the case for you, then exploring ways to use your home equity might make sense.  Some options to think about include downsizing, getting a reverse mortgage, home equity lines of credit, renting out a room or paying off your mortgage before you reach retirement.

  1. Lacking basic knowledge to manage finances and prepare for retirement

While many Americans lack a basic understanding when it comes to managing their finances, there are a number of resources available out there.  If you participate in a work-based savings plan, then you likely have the option to enroll in retirement education and financial wellness programs.  There are also many websites, blogs and easy to understand books available on the topic.

  1. Uncertainty about social security

Social security “…provides the foundation upon which most Americans build their financial plans”; however the system is facing many challenges.  Being that social security is such a critical part of one’s retirement plan, it’s important to learn how to optimize your social security, such as deciding when to start collecting benefits.

If you’re concerned about your financial security and are looking for a way to supplement your retirement income, a reverse mortgage may be able to help.  A Home Equity Conversion Mortgage (HECM), commonly known as a reverse mortgage, is a Federal Housing Administration insured loan.  A HECM enables seniors to access a portion of their home’s equity to obtain tax free2 funds without having to make monthly mortgage payments.3

If you’d like to learn more about reverse mortgages or want to find out if you’re eligible, call 800-218-1415.

 

 

1 6 Challenges to Achieving Retirement Security – cbsnews.com, by Steve Vernon, 6/24/16, http://www.cbsnews.com/news/6-challenges-to-achieving-retirement-security/.

 2 Consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.

3 You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance and maintain the home according to Federal Housing Administration requirements.

Author:  Meredith Manz