Working-age households must all ask the same question, “Will I have enough money to retire?” A steep decline in the percentage of companies offering pensions is just one of the factors that puts the burden on individuals to save more. Over the last 30 years, significant changes happened that affect the amount of money you need when you step aside from working income:
- Longer life expectancy – Living longer means that you’ll have more years to draw down on retirement savings.
- Change in Social Security retirement age – With ‘full retirement age’ age moving from 65 to 67, benefits effectively reduce at any given claiming age. In addition, the annual inflation raise for Social Security doesn’t keep pace with cost of living.
- Increase in out-of-pocket health care costs – Retirees are hit with a double-whammy: rising costs of healthcare and fewer workers with employer-sponsored retiree health benefits to supplement Medicare. Therefore, seniors have to use a higher percentage of income on medical expenses at a time of life when medical expenses typically accelerate.
- Chronically low interest rates – Suppressed interest rates keep income from fixed investment vehicles at a minimum.
Given the obstacles above, it’s getting tougher to avoid a savings shortfall in retirement. Besides working longer, what can you do to make your money go farther? One thing you can do is focus on staying as healthy as possible. Another tactic is to kick into a higher gear of saving when kids leave home. Many people see reduction in expenses as a raise in living standard. But spending less, and making trade-offs now will avert tougher decisions later.
Talk with a Salmon Sims Thomas tax advisor about ways that you can save money and save on taxes.