Even if retirement seems far off, starting to save now can make a significant difference in your financial future. Here are three key reasons to prioritize retirement savings today:
Social Security Might Not Be Enough
Social Security has faced long-term funding challenges, and recent trends suggest that benefits may decrease in the coming decades. The Social Security Trust Fund, which helps cover benefits, is projected to be depleted by 2034 if no reforms are made. While the program isn’t expected to disappear entirely, benefits could be reduced to about 75% of what retirees are currently promised. To ensure a stable retirement income, it’s crucial to supplement Social Security with additional savings.
The Shift Away from Employer Pensions
Traditional pension plans have largely vanished from the private sector. Today, only about 15% of private sector workers have access to a pension[1]. With fewer employers offering pensions, the responsibility for retirement savings has shifted to employees. Contributing to a 401(k) or similar retirement plan can still be effective, especially when you start early and benefit from compound growth. For example, contributing $5,000 annually to a 401(k) with a 6% annual return could grow to over $820,000 over 40 years.
Longer Lifespans Require More Savings
With increasing life expectancies, many retirees are at risk of outliving their savings. The average life expectancy for Americans in 2024 is 79.25 years[2], and retirees may face significant healthcare costs as they age. According to recent data, healthcare expenses for retirees are expected to rise at nearly three times the inflation rate[3]. Planning for these rising costs is essential to ensure your savings last throughout retirement.
Starting to save for retirement early can help you build a robust financial foundation and address these challenges effectively. If you’re concerned about catching up on your savings, consult with a financial advisor to set new targets and get back on track. With careful planning and early action, achieving a comfortable retirement is well within reach. Investment advisory products and services made available through AE Wealth Management, LLC (AEWM), a Registered Investment Adviser. 02533835-08/24
[1] : https://www.bls.gov/opub/ted/2024/15-percent-of-private-industry-workers-had-access-to-a-defined-benefit-retirement-plan.htm
[2] https://www.macrotrends.net/global-metrics/countries/USA/united-states/life-expectancy
[3] https://www.healthsystemtracker.org/brief/how-does-medical-inflation-compare-to-inflation-in-the-rest-of-the-economy/
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