Reduce Debt Increase Wealth

Benefits of Retirement Savings

August 14, 2022 MIsterchuck Season 3 Episode 126
Reduce Debt Increase Wealth
Benefits of Retirement Savings
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Show Notes Transcript

Having to work past retirement because cannot pay the everyday needs is not an option. Taking care of needs is necessary so saving for retirement at a youthful age is necessary. There are more bills to pay as we age for example medical. So, what are the benefits of retirement savings.

 Article Links:

How Much Will Healthcare Cost in Retirement? Prepare to Be Shocked | The Motley Fool

This is how much — or little — is in the 'average' 401(k) plan - MarketWatch by Brett Arends, ROI By Mark Fonville



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Hello, I'm your host, Mr. Chuck, I retired accountant turned truck driver, I reduce my debt in a relatively short period of time, debt reduction, to achieve financial freedom takes commitment, confidence, determination, benefits or retirement savings. Having to work past retirement because cannot pay the everyday needs is not an option. Taking care of needs is necessary. So saving for retirement at a useful age is necessary. There are more bills to pay as we age, for example, medical. So what are the benefits of retirement savings, we're going to talk about that last, but I'm gonna start out is how much money the average person is saving on a 401 K plan. And I'm assuming that's going to be about the same balances there are in traditional IRAs. In fact, that traditional IRA may even have less money in there, I had never worked for an employer that had a 401 K. So I never had an opportunity to start a 401k. But I did have my own IRA, which when I was in my early, late 20s, early 30s, I set up and start saving money, I wasn't consistent on it, which now I'm paying the price because now I'm worried that when I retire, which is going to be soon that I will not have enough money available to pay for the things I need to pay for. Now I know a lot of you are struggling to get your debt paid off or paid down. That is a good thing. So while you're doing that, you should be also putting nice small amount away for your retirement. So don't quit saving money for your retirement, thinking you're gonna catch up later when your deck is paid off. Because I can guarantee you something will happen. And you'll acquire new debt. And you'll never get around to building up that savings. And if you're wait till you're 50 years old, you're gonna have to save a lot more money. So you have to earn more money to save more money. So if you start at an earlier age, late 20s and start doing it on a regular basis and never stopped doing it, you'll have plenty of money when the retirement time. So let's start out. I have these in my show notes. There's three articles. First ones from Market Watch. This is how much or little is in an average 401 K plan. These dismal figures come on the heels of a record boom, lasting more than a decade. And they're talking about a record boom of the stock market. Vanguard had just dropped his annual blockbuster survey of all the millions of retirement plans. It manages how America saves and it's pretty astonishing reading as usual. Bottom line, the average report it balances dismal and nor the headlines was say the average American worker has a 401 K balance of $142,000. This is merely the mean reach by adding up all the balances and dividing by the number of participants is heavily skewed by a small number of very big accounts. Elon Musk walks into a bar and the average net worth of everyone in it skyrockets. More useful is the median, which is calculated by Rankin, everyone from poorest to riches and picking the one and the middle. Today, the median American 401k balance is $35,000. No, really, it hasn't risen that much since 2012. Some 40%. And two and five have less than $20,000. And this, let's remember, is after a record stock market boom lasted more than a decade and fueled by the Federal Reserve a massive US government deficits. Retirement savers had never had it so good. from 2010 through the end of 2021. The s&p 500 A minus 3.67% produce total returns of more than 400% quadrupling the money of those invested in stocks, bonds has risen so far, by the end of 2021. They're almost guaranteed to lose money if you hold on to them. The study relates to 2021. So it doesn't even factor in the losses since the start of this year. Since 2022, started, the market has been dropping. Okay, the average person in the survey is in their mid 40s. So they have time left to save. But what sort of returns can they expect in the next 10 to 20 years, you don't have to be a Wall Street Chicken Little forever warning that the sky is going to fall to fear that the US stock markets looks pretty expensive. returns in the past decade had been way above historic averages. These things have a way of evening out over time, that closer to retirement are typically better off than those in middle age, as you expect, but not by enough. The medium worker between the age of 55 and 60 has a 401 K balance of around $90,000. To put that in context, that would buy a 65 year old couple lifetime annuity of just $5,000 a year with no inflation protection, good with that. That annuity would pay you $416.67 per month. If you live 20 years. I don't recommend annuities. I don't like them. But that's my personal opinion. But that is not much money $416 For the rest of your life. Could you live on that? Add in your Social Security, maybe you're gonna get three grand from Social Security, your expenses could be$6,000 a month, especially if you have debt. If you don't get your debt paid down before you retire, you could be struggling no matter how much income you may have from Social Security. So $90,000 a balance a is not much money. And why isn't that much money? Well, this lists look at one expense you probably are not even thinking about. And this is from the Motley Fool, fool. And it's again a link in my show notes. How much real health care costs in retirement prepared to be shocked. As you might imagine, it's not a small number. It's a big misconception that living costs drop drastically in retirement. The real reality is that some of your expenses might get lower, but some might also raise healthcare has fallen into the later category, as because medical issue tends to raise as we age and also because Medicare with Sr. Commonly rely on it starting at age 65 has its limitation. In fact, fidelity ran some numbers and found that the average 65 year old male female couple retiring now 2022 should expect to spend a whopping $315,000 on medical costs. That figure assumes enrollment and Medicare Parts A, B and D. When we break that figure down farther we see the average 65 year old males should expect to spend 150,000 on health care costs. throughout retirement. The average 65 year old female should anticipate spending 165,000 Since women tend to live longer than men, that higher number does make sense. It's also worth noting that last year for the LD estimates had an average opposite gender 65 year old couple spending 300,000 on health care and retirement. That means that feger jumped 15,000 in a single year. It also underscores the importance of saving for future health care costs to avoid a financial crushed and later life. If you live 20 years 300,000 That's 15,000 a year. Granted, if you retire at 66, that's not going to be 15,000. It may be a small amount or it could be higher if you have health issues. We all know the price of healthcare is going up every year. We all know the price of new automobiles and US automobiles are going up every year. The price of gasoline to run that automobile is going up. So the more you You save. The sooner you start, the better off you're gonna be. When it comes to covering healthcare costs later in life, you have an options, you could pay your IRA or a 401 K plan. So you're better equipped to pay your future medical bills. Or you can dedicate funds and to a health care in a health savings account, or HSA a if you use a HSA is a triple tax advantage. The money you contribute goes in tax free. investment gains in your accounts are tax free. withdrawals from your account are tax free provided to us to cover qualified health care expenses. And that is while you are working. So if you have a health care plan that has a health savings account, that might be a good option to go. In order to qualify, you need a high deductible plan so that your health insurance is a little bit cheaper, then you put the money into the savings account. It's tax free when it goes in, it grows tax freeze, and it's tax free when it comes out if you're using it for qualified health care expenses, what those are, I don't know, probably major surgeries, stuff like that. Meanwhile, health insurance Health Savings Accounts limits change from year to year. But this year, you can contribute up to $3,650 If your Self Only coverage or up to$7,300. If you have family level college. If you're 55 or older, you can make catch up contributions to your health savings account, adding $1,000 to whichever limit applies you next year those limits are increasing. For cellphone coverage you can contribute$3,850 for a family coverage is $7,750 in a course, that $1,000 catch up if you're over 55. Another thing you should know about how savings account as they come age 65 They efficient, effectively convert to a traditional retirement plan. Normally, the penalty for taking a non medical health savings account withdrawal is steep 20%. But once you turn 65, you can take non medical withdrawals without being penalized. And that scenario, you can simply pay taxes on your withdrawals the same way you would a traditional IRA or a 401 K. Spare yourself unwanted stress healthcare costs or burden for many seniors. But it doesn't have to be the case for you. If you set yourself up a nice chunk of money to cover your future medical bills, you'll have one less thing to concern yourself with at a time in life when you're trying to enjoy your new found freedom. So that's a benefit of having a health savings account. It's tax free, when you're younger, it grows tax free when you're younger. As long as you use it for medical expenses, or they are saying qualified medical expenses. It's comes out tax free. You hold on to it you retire. Once you turn 65, you can use it just like you would any other retirement account, you can just consider it a retirement account. It doesn't have to be exclusively used for medical expenses. That's a big plus. So you can actually put and the limits the maximum limit and your health savings account. And you can actually also maximize your 401 K or your IRA to its limit without any penalty. So you can increase the amount your savings. So if you're starting in say 45 to 50 range, and you have an option for a health savings account, you should really consider doing that. Because it can be beneficial down the road. When you need the money the most. It will be beneficial. Now what are the benefits are retiring? Planning today there's nine of them. And I discovered one of the benefits of retirement planning aren't always obvious. But if you're worried about retirement is imperative that you know how retirement planning can help you. Half of Americans believe it's impossible to actually plan for expenses in retirement. Even worse. Did you know that 63% of Americans have fear running out of money in retirement even more than they fear death. Get your retirement checklist for over 30 Things you need to know about your retirement and there's a link here in my show notes to this article, and then the article, there's a link for those 30 things you need to know. With this in mind, it's only natural to be thinking about the benefits of retirement planning in the first place. The good news is that a handful of retirees are doing a good job living on their retirement savings. Study from Blackrock look that retirees two decades into retirement across all wealth levels, and more half, more than half of all retirees still have most of their pre retirement savings. That's certainly good news for people currently retired. What they're not telling us how much they've saved to start with. I heard 20 plus years ago, the benefits or retirement planning are more important now than ever before. And unfortunately, the economic landscape has changed significantly since the silent generation retired of the current retired generation of retirees roughly half step to retirement with a defined benefit retirement plan. This type of pension is guaranteed monthly income payment for life provided by an employer, those nearing retirement, not so much. Employers have switched almost unanimously to savings based retirements plan, just 15% of those born after 1945 will retire with any type of pension at all. So if you're born after 1945, the chances of you having some type of pension plan to your work is fairy Knell only 15%. And I'm gonna guesses that 15% are proudly owners of small businesses who set that up for themselves. Healthcare costs further complicates the picture. Our couple retiring this year was spent nearly 300,000 on health care and retirement, according to a study by fidelity of that you're in premiums are going to be 35% of that your deductible and co pays are going to be 45% of that. And your prescription drugs are going to be 20% of that. So these are all your out of pocket expenses 300,000. And if you live 20 years, that's 15,000 a year granted and may not start that high, but over time, that's what the average is gonna be. That's up 70% from the 2002 figure of just over 200,000. Medicare and prescription drug plan premiums account for 35% of that figure. The remainder comes from deductibles co pays coinsurance, and N covered expenses. Four and 10 Retirees said their health care expenses are much higher than they expected. The landscape has changed. So it's not surprising that the fear of running out of money in retirement is a top concern. If you're in your 50s or 60s, you have a right to be worried. The good news is never too late to reap. The good news is never too late to reap the benefits of retirement planning to achieve financial security. One know how much you need to retire. A recent survey showed that 61% l dalts. Had no idea how much they need to retire. Estimate range from 500,000 to 25 times one's annual salary in the year of retirement. Despite the lack of certainty, however, only one in four surveys respondents sought advice from a professional financial adviser. One of the main benefits of retirement planning is knowing how much savings you need the day you leave work. He also wants to know how much you need to save and invest each year to get you there. That retirement calculation can be complex and are highly personal. If you need help, as certified financial planner and assist. If you have investments in the stock market, that same financial planner can help you with that. To get you into the right investments, to peace of mind is of benefit. Between 1/3 and one half of working age Americans report anxiety as a result of financial stress that grew At nearly 60%, I'm most concerned about their financial future, as opposed to current money, troubles. Financial stress robs people of sleep productivity and even good health. Financial planning can help remove one of the major contributors to financial stress, this can be a big benefit. When you have a retirement plan, you have more emotional energy to focus on things that matters most to you. Three make smarter decisions. Most financial decisions have long term impact, but more complex your life becomes, the more decisions you have to make. Often those decisions don't have a black and white answer, for example, may want an answer to questions like does it make financial sense to change jobs? How can I maximize my employer benefits? When should I take so search Kirti? How can I reduce taxes? Should I purchase that vacation home? But the fact is, every pebble causes ripples and your financial pond. The more decisions you have, the more anxiety you have about your future. When you know that you're in relation to achieving your goals, you have the information you need to make wise choices. That's a big benefit to financial planning today for reduce your tax burden. Most people don't mind paying that taxes they actually hola Oh, but no one wants to pay more than she has to tax planning for retirement is a complicated issue. What will your tax bracket be after you retire? She invest in a Roth or traditional IRA or a combination of both? How will future tax law change your retirement spending? Planning for tax efficiency is one of the benefits of finance of retirement planning. Five have a unified vision for retirement. There is a good possibility that you and your spouse may have different ideas about what retirement would look like. You may envision that grandchild friendly house with a big yard located between your kids home and on the other home your spouse may envision a maintenance free condo on a golf course and Florida. differing opinions between spouses happen more often than you think. So you plan together stay the other six, prepare for healthcare expenses. It's sobering that 58% are women and 47% of men will need long term care. The average end of life stays about two years and 15% when the five or more years of long term care. It's no surprise that the sale of long term care insurance has grown exponentially. Seven retire on your terms eight and 10 workers wants to retire before age 65 The reality is fewer than half of them will be financially prepared when they're ready to quit working. There's a number of reasons that retirement could be delay, delay, Social Security eligibility, increase health care costs, stock market declines in corrections, lower levels of savings. Everything's gonna affect of how and when you retire. And a leave a mainly for legacy. The fact is everyone leaves a legacy. The question is what kind of legacy you leave behind. mandate for many people a life well lived, filled with family, friends and financial security, to enjoy them as more than enough. Others want to provide education for their grandchildren, or give to a charity such as their church. Again, the benefits of planning aren't limited just to your money today. A good plan are also include estate planning. Proper estate planning can help you leave a legacy that has meaning for you and your loved ones. Don't let the government take your money is what that is saying. And conclusion retirement planning isn't just for workers to start now. especially helpful when you're ready to reevaluate your plans as you prepare to retire. The truth is great advice can be priceless. You spend most your life working hard and raising a family. You owe it to yourself to realize the many benefits of retirement planning. With that said, I'll be back in one moment with my final thoughts. If you want to contact me to request my spreadsheet for the budget, or leave a comment or ask a question, you can send it using my E Email, reduce debt, increase reduce debt increase wealth is all together no spaces. If you'd like to ask a question, quick question in the subject, if you'd like to request my monthly budget, put that spreadsheet in the subject matter if you want to leave a response of any kind to put a comment in the subject matter. I will get back to you as soon as possible. If you think you're gonna do the fire movement, have financial independence and retire early, you need to start that as soon as your first job. And you need to say 60 to 70% of your income, and that's income gross, and your lot, you're going to lose some of that from taxes, you're gonna lose some of that from living expenses such as housing, transportation, and food. Eat, you have to have that no matter what your plans are. So be reasonable. Keep your debt under control. If your debt is out of control, have a debt reduction plan. Work on that. And while you're doing that, have a retirement plan also, and start saving, even if it's $10 of pay. Start saving now, and be consistent. Don't miss a week. Don't say Well, I gotta pay this credit card, so I won't put any money in my retirement plan. This pay. I'll catch it up later. But guess what? Later never gets here. So if you save early and say often, keep your debt under control. You'll be in good shape for your retirement, and you'll be glad you did. So