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(Aug. 17, 2021) — It’s no secret that the American population’s estimated retirement savings are hardly enough to cater to retirement life. The PWC estimates that the average retirement savings for workers less than 10 years before retirement is $120,000.

Dividing this amount with the average 15-year retirement period, they can spend only $1000 on a monthly basis. This is far off from the average household spending that ranges from $3,000 to $7,000, depending on family size.

While only 13% of individuals over 60 years old have no retirement savings, 42% of millennials have zero saved up for retirement. This is even though several affordable retirement savings plans are worth investing in.

So WHY are there people still not buying a retirement plan?

Some of the reasons include financial difficulty leading to limited spending, leaving them with little to no funds to invest. Another group believes that they have enough time to get their act together while others have thrown in the towel by implying it’s too late.

While all these factors may appear to be true, having a complete retirement planning guide is essential in your savings journey.

How To Start Saving For Retirement?

Given that the Social Security Fund is fully funded until 2034 and from there, only ¾ would be funded, its bleak and uncertain nature prompts you to start saving for retirement. Having a retirement plan will give you more control over your future and relieve you of emotional and financial stress.

Start Off Small – Starting off is the hardest part, and it’s therefore important to start with the little you have and then build consistency.

Set Goals – Having retirement goals and sticking with them will work to your advantage. One thing to consider is paying off your debts before you hit retirement age.

Invest up to 15% in a retirement plan – Although there are several factors to measure your retirement savings amount, opt to save at least 15% of your annual income.

5 Factors to Take Into Consideration Before Choosing The Best Retirement Savings Plan

Retirement savings plans are clustered into two: annuity plan and savings plan. There are several accounts under this plan, including:; Defined contribution, 401(k), Guaranteed income annuities, IRA, Cash-balance plans, Federal Thrift savings, Cash-value life insurance, non-qualified deferred compensation plan, and a traditional pension.

Let’s look at factors that will help you gauge the best retirement savings plan for you.

a. Regular Income

A plan that offers you a regular and guaranteed income should be a go-to for you and your family, as it ensures you have the financial flexibility to cover your bills. To facilitate this kind of plan, an individual will have to forgo a large sum of money to get a monthly life payment by buying an immediate annuity.

This falls under the general income annuities. Unfortunately few people opt for this plan but rather, go for the deferred income annuities.

b. Inflation Insulation

Having an income aptly protected from the fluctuating market is ideal because the cost of living, especially health care, is constantly on the rise. To shield your savings from decreasing purchasing power, buy retirement plans that invest in safe investments, real estate, safe stocks, and annuities.

With the average inflation rate estimated to be 2.6% for the past three decades, you can see how inflation will eat at your savings.

c. Additional Benefits

A flexible plan that will allow the integration of your savings and further offer more monetary benefits by complimenting your savings. Weigh the pros and cons of a plan, while you may have the chance in a 401(k) plan to match your employer’s contribution which is a plus, but it’s hard to access the funds in case of an emergency or an investment opportunity.

On the other hand, a 407(b) plan is referred to as a supplementary plan and also offers a savings catch-up for workers close to retiring. Also, the capability of shifting your account in case you switch employers is a key factor.

d. Investment

Choosing a plan that has more investment options is a sure way of growing your retirement savings. This is the case with a traditional IRA that not only offers tax benefits but also leeway to buy several investments, including stocks, real estate, etc.

But you’ll have to be disciplined enough not to risk investing in hot and risky ventures that may deplete your funds if anything goes awry. Looking at the potential returns of the plan will ensure you make the right decision. For instance, 401(k) and 403(b) plans have the probability of earning high returns.

e. Your Spouse Security

A retirement plan cushioning you and your partner is preferential in easing off your family’s financial turmoil by offering joint coverage. This is offered through a spousal IRA, in case you want your significant other to handle other family duties and still be taken care of when s/he retires.

Your goals and the expected income-earning should influence your decision in picking a suitable plan.

References:

Carolyn Colvin, A. C. O. S. S. and Carolyn Colvin, A. C. O. S. S.
Carolyn Colvin, A. and Carolyn Colvin, A. (2016) Social Security Funded Until 2034, and About Three-Quarters Funded for the Long Term; Many Options to Address the Long-Term Shortfall, Social Security Matters. Available at: https://blog.ssa.gov/social-security-funded-until-2034-and-about-three-quarters-funded-for-the-long-term-many-options-to-address-the-long-term-shortfall/ (Accessed: 5 August 2021).

calculator, R.
calculator, R. (2021) Retirement Calculator, Calculator.net. Available at: https://www.calculator.net/retirement-calculator.html (Accessed: 6 August 2021).

The Complete Guide to Physician Retirement Planning
The Complete Guide to Physician Retirement Planning (2021). Available at: https://physiciansthrive.com/retirement-planning/#1 (Accessed: 17 August 2021)

AUTHORED BY: Naomi Olson [Twitter • Headshot]
I am a CFP® (Certified Financial Planner). I have a severe phobia of bridges and dirty balance sheets. Hobbies: blogging, meditation, and loving Bull Market (my dog).