Good Financial Planning Means Less Gray Hairs for You!

August 17, 2021

After decades of saving, it's time for a cash audit: How much money is available? How do you spend wisely so that my savings will last through my retirement? And, what river cruise through France you’ve always been talking about? One thing is clear: hardly anyone can live on interest alone. You have to get a grip on your savings.

More and more older Americans are plagued by acute or impending financial problems. These are often caused by changes in living and income circumstances. They can also result from low pension entitlements due to unemployment or low wages.

“The share of people age 75 or older who lead a household and carry debt jumped to 51.4% in 2019 from 41.3% in 2013, according to a new research from the Employee Benefit Research Institute.” CNBC

Taking retirement into your own hands has never been more important than today. However, most people start too late. After all, a conservative saver should have a full gross annual salary in his or her account by the age of 30 if he or she does not want to lose out on a pension. But there are options.

An Eye on a Side Job?

It's never too early to think about later, and there is a wide range of private pension and savings plans to choose from. But which retirement provision is the right one? Or, is there an alternative? 

Those who have completed their working lives and are happy to be retirees need to see that they can manage on their pensions. However, more and more these days, pension savings are so low that many people choose a side job.

At present, significantly more people over the age of 65 are employed compared with ten years ago. For purely economic reasons, and also because our health in old age has improved compared with our parents at the same age.

Instead of being passive and withdrawn, the majority of older people in this country are optimistic, active, and motivated!

“On average, still-working seniors had $133,108 saved for retirement … remaining in the workplace can help defray the cost of health insurance, life insurance coverage, and disability insurance, as employers tend to cover a portion of the expense.” Darla Mercado, CFP

Is There a Financial Planner in the House?

The average 50-year-old currently earns about 55,000 gross per year, giving them a monthly net income of 2,800. As they would only receive 1,100 per month when they retire at the age of 65, they would lack 1,700 per month (over 15 years) for their current standard of living. This corresponds to a sum of 300,000 that is needed to make up the pension gap.

According to the IRS, withdrawing money from an IRA before age 59½ isn’t ideal. The withdrawn amount is considered part of your gross income and has a penalty tax of 10%. And that assumes we have much money saved at all.

If you aren’t yourself a banker, then self-organized saving presents some difficulties. If we are completely honest, we don't know how much we will be able to withdraw from the account each month. How do we account for inflation or low interest rates? Exactly how old we will get? There is a risk that too much will be withdrawn and your savings will not be sufficient.

This Isn’t Your Father’s Retirement

Older Americans are buying houses in their 50s and 60s. It’s different than when you were starting out, but still, an interesting retirement alternative. It may be nice to have a home of your own if you spent your working life moving from city to city.

“Instead of going with the old way of the mortgage-burning party, which is what people did when they paid off [their mortgage] prior to retirement, nowadays we see people buying bigger, more expensive houses with less down payment.” Olivia S. Mitchell, Wharton professor of business economics and public policy

Many people today no longer believe that they will receive an adequate pension. For many, retirement before the age of seventy already seems illusory. However, it’s not bad at all to be among the elderly, because there are more and more of us. Today, one in five people is older than 65; by 2050, it will be one in 4! So start today and plan on living your best life.

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