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‘Lousy savers’

Few things expose one’s money habits like retirement planning. Aggressive, ritual savers who started early are rewarded with reliably rising account balances, supercharged by dividend reinvestments and compounding interest.

But the reality is that millions of Americans simply aren’t putting enough away for traditional retirements, let alone the early exits pondered by 50-somethings — a move Kotlikoff says they’ll “regret” unless they adjust their expectations or give up the plan altogether.

“We are, as a group, lousy savers, making early retirement unaffordable,” Kotlikoff wrote in a guest column for CNBC last year. “Financially speaking, it’s generally far safer and far smarter to retire later.”

It should be noted that Kotlikoff ends his argument by stating he plans to “die in the saddle” because he loves what he does. But those tired of corporate climbing or reporting to a manager may have different plans for their golden years.

How many are truly ready for it?

A survey done by the Federal Reserve revealed the median savings in Americans’ retirement accounts was $65,000. Older savers between the ages of 55 and 64 had median account values of about $134,000, well below what they’d require as life expectancies rise, inflation pressures remain and increasing out-of-pocket health costs take their toll.

Read more: This janitor in Vermont built an $8M fortune without anyone around him knowing. Here are the 2 simple techniques that made Ronald Read rich — and can do the same for you

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Underestimating health care costs

Another study published by the Center for Retirement Research at Boston College in 2022 found a significant disconnect in how would-be retirees perceive the effects of market volatility and longevity when calculating their post-work plans.

The report found that many overestimate the effect of market gyrations and pay less attention to how long they’ll live and how much that longevity will affect their finances. Unexpected health expenses — never mind long-term care — are significant drains on retirement funds.

The study’s data, author Wenliang Hou concluded, “confirms the importance of longevity and market risk, underscoring the need for lifetime income either through Social Security or private sector annuities. Finally, long-term care is also a significant risk faced by retirees, but one they often underestimate.”

Shaky Social Security

There may be encouraging signs in the federal government’s primary social safety net. Social Security payouts are going up in 2023, and several rule changes will boost recipients who waited to tap the system.

But Social Security is currently on a timer. Without changes at the federal level, economists estimate the main fund that supports Social Security will run low by 2034. Recipients could see less than 80% of the benefits they expected.

Economists have long warned against overly relying on Social Security, and many of them urge investors to build retirement plans that assume the program will be gone.

Kolitkoff is a long-time critic of the government program and its policies. For example, Kolitkoff wrote an article in March criticizing Social Security's earnings test and adjustment of the reduction factor (ARF) tax rebate.

"Social Security's Earnings Test tops my list for our government's most senseless and personally financially destructive policy," he wrote.

The main advice from Kolitkoff — as well as others when it comes to retiring or tapping Social Security benefits — is to wait, and instead consider upping your savings and investments while you continue to work. The additional time will keep your investments working harder and longer, and delaying Social Security benefits means a bigger monthly payout down the road.

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Consider getting expert advice

Setting yourself up for a comfortable retirement is nerve-racking — especially with consumer prices and interest rates still stubbornly high.

One solution to help you sleep better: Find a financial adviser who can help navigate your finances, keep your retirement plans on track and make sure your assets are safeguarded.

Researching and calling multiple financial planners can be a time-consuming hassle, but there are ways you can easily browse vetted advisers that fit your needs. Booking a consultation is free and only takes a few minutes.

If you're unsure how to safeguard your finances during a recession, it’s better to find answers sooner than later, while time is still on your side.

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Chris Clark Freelance Contributor

Chris Clark is freelance contributor with MoneyWise, based in Kansas City, Mo. He has written for numerous publications and spent 18 years as a reporter and editor with The Associated Press.

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