Jul 4, 2023
When it comes to fears that keep Americans up at night, death may loom large — but for many, it pales in comparison to an even more terrifying threat: going broke in retirement.
A “remarkable” 61% of respondents expressed that fear in a recent survey conducted by life insurance giant Allianz Life (ETR:ALV). And yet, many still aren’t taking the necessary steps to avoid that grim fate.
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Why? Well, thanks to stubborn inflation, interest rate hikes, market volatility and other challenges, they’re hardly able to get by in the here and now — let alone think about setting up a secure financial future.
Almost half of respondents to the Allianz survey said they’ve reduced or stopped saving for retirement due to recent financial crises and they don’t expect to increase their savings levels in the foreseeable future — leaving them in real danger of outliving their money.
“People’s retirements are too important to leave to chance,” said Kelly LaVigne, Vice President of Consumer Insights, Allianz Life. “The key takeaway here is that the new retirement reality requires everyone, now more than ever, to have a plan and stick to it.”
If you’re afraid of ending up old and poor, there are many ways to build out your nest egg — and kick your retirement anxiety to the curb.
Retirement confidence is low
Gen Xers (aged 43-58) and millennials (aged 27-42) are more pessimistic about their financial futures than boomers (aged 59-77), according to the Allianz survey.
“Understandably, Gen Xers and millennials are feeling uncertain about the future. And looking back over the past 10 plus years, who can blame them,” said LaVigne. “From financial crises to politics to the pandemic, we all have reason to wonder what else might be just around the corner.”
Gen Xers’ confidence, in particular, is low — as they’re zooming towards retirement and many are simply not ready. That generation’s confidence in their ability to financially support all the things they want to do going forward has trended downward from 75% in 2021 to 73% in 2022 and 69% in 2023.
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According to the survey, 54% of Gen Xers have no idea how much money they need to save for retirement, and 59% have no idea how long their money will last in retirement. Furthemore, 64% worry they won’t have enough saved for retirement — up from 55% in 2021.
Again, much of this anxiety boils down to the rising cost of living, with 67% of Gen Xers reporting that their income isn’t keeping up.
The stats for this close-to-retirement generation are generally worse than those coming from the millennials, who still have ample time to save before retirement, and boomers, many of whom are already retired.
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Getting your retirement strategy on track
Regardless of age, nearly 40% of Americans said their retirement strategy has derailed and they aren’t sure when or how they’ll get it back on track. But it’s not impossible. Here’s how to move on from being anxious to taking action.
Make a plan
The good news, according to LaVigne, is that “even in these uncertain times, proper planning will go a long way toward securing your retirement goals.”
But 40% of respondents to the Allianz survey said they don’t have a financial plan for retirement and they’re planning to just figure it out when they get there.
LaVigne said a good retirement plan should include “sound strategies to accumulate the money you’ll need in retirement” as well as “risk mitigation strategies to protect you from the inevitable rough patches.”
There are many ways to boost your bank balance ahead of your golden years — but some investing strategies take less time to generate returns than others.
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You might want to seek the guidance of a financial adviser who can help you figure out the best options for you in the time you have left before retirement.
Settle debts
Saving is crucial, but you’ll also want to make sure you have a plan for settling all of your debts (or at least any high-interest loans) before retiring — as you don’t want them weighing you down later in life.
This is important because things like credit card debt, your car loan, the mortgage on your house, and the remaining balance on your student loan all accrue interest over time.
You don’t want to keep racking up interest charges while trying to save — especially with rates as high as they are now.
If you’re not in a position to pay debts and you’re tied down by multiple lines of credit, you can try negotiating with your lender or consider a debt consolidation plan, which pools your various debts into one simplified loan, often with a lower interest rate.
Boost retirement accounts
When planning for your financial future, tax-friendly investment vehicles like a 401(k) account, are a great tool to get ahead.
A 401(k) retirement savings plan allows you to steer a portion of your pay into an account where you can invest and grow your money — and get a tax break. And some employers offer matching contribution plans, which is about as close as it gets to free money.
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If you don’t have access to a 401(k), you might consider opening a traditional IRA, where you can contribute pretax income where it’ll grow tax-free until you start making withdrawals in retirement.
In 2023, you’re allowed to contribute up to $22,500 in a 401(k) and up to $6,500 in an IRA.
Another option is a Roth IRA, where your contributions are taxed upfront so that your withdrawals are tax-free in retirement. Roth IRAs offer some advantages and flexibility compared to traditional IRAs, but they’re also subject to certain rules and limitations and you can face penalties if you withdraw your earnings too soon.
The good thing about all of these accounts is they allow you to grow your wealth and put your money to work by investing, giving you that needed cash flow in retirement.
Finally, pay close attention LaVigne’s caution about the “inevitable rough patches” you’ll experience in retirement — mostly likely in the form of unexpected health emergencies — which can get very expensive.
An employer-sponsored emergency savings account can help retirees withstand health care-related financial shocks.
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Bethan Moorcraft is a reporter for Moneywise with experience in news editing and business reporting across international markets.
