Americans don’t save enough to retire comfortably, leading them to a major savings crisis that can only be averted using smart financial moves.
Why do Americans need to save?
Fidelity Investments recently said that about 50% of American might not be able to cover their essential expenses post-retirement. Talking to Fox Business, the vice president of retirement income at Fidelity, Keith Bernhardt said that meeting expenses during retirement is a challenge for a lot of Americans. He suggests that people should put away 15% of their annual income in retirement savings to ensure that they continue funding their lifestyle post-retirement.
To save this money, users can take advantage of their 401(k) or other employer-sponsored plans, especially if the employer matches your contribution. Currently, the contribution limit to 4901(k) is $19,000. People over 50 years of age can make “catch-up contributions” of up to $6,000. For the IRA, the contribution limit is set at $6,000.
Health Savings Account (HSAs) can also help boost retirement savings. They allow users to contribute their pretax dollar for spending on medical purposes only. They can cover several costs for the users, including vision and dental checkups alongside costs of prescription. They can also be used for Medicare premiums.
Can Social Security be your last resort?
Several people consider the Social Security program a replacement for retirement savings, which is untrue. The program was only designed to supplement the retirement income. A Fox Business survey suggests that 25% of Americans believe they can depend on Social Security alone after retirement. Some even think that claiming the benefit at age 62 is good since it will keep increasing over time.
Bernhardt said that people should delay claiming Social Security benefits. This helps in increasing the payout by 8% annual, which is a significant number. People who claim Social Security at the age of 62 get a 25% reduction in benefits while those who claim at 63, get a 20% reduction in benefits. For those ages 64, the benefit is reduced by 13.3% while those aged 65, get a 6.7% reduced benefit.
The Social Security reserve fund is depleting quickly and will be emptied by 2035 according to a Social Security and Medicare trustees report. At the time, 80% of the benefits will still be payable. Bernhardt says that today’s workers can still depend on Social Security. However, if you don’t want to go broke after retirement, it will be better to start saving via all available means today.