Retirement is the true American dream. Sure, many might fantasize about striking it rich and becoming famous, but when it comes down to it, the real goal is to make enough money so that you don’t have to work another day in your precious life.
Also Read- Why Is AGNC Investment’s Dividend So High?
Don’t miss
- Rich young Americans have lost confidence in the stock market — and are betting on these 3 assets instead. Get in now for strong long-term tailwinds
- You could be the landlord of Walmart, Whole Foods and CVS* with First National Realty Partners (and collect fat grocery store-anchored income on a quarterly basis)
- BlackRock — the world’s largest asset manager — says central banks are ‘deliberately’ causing recessions and warns of a downturn unlike any other. Find shockproof assets to invest in 3 easy steps
Yet the problem is that this really can be just that: A dream. That is, unless you’re prepared.
Read More:- Beat the Dow Jones With This Unstoppable Dividend Stock
And that means dealing with some hard realities about walking away from the workforce — especially if you’re hoping to hang up your lunch pail a little early. Here are five uncomfortable truths about retirement that you need to face before you can make that dream come to life.
Most Americans are unprepared
It’s an unfortunate reality, but only 28% of American workers were found to be “very confident” in their ability to retire comfortably, according to a 2022 Employee Benefit Research Institute study. That means the vast majority of Americans are unsure if they’ll be able to live comfortably throughout their retirement, let alone retire early.
How can you determine your retirement confidence? Fidelity Investments recommends a simple method to help you find out what your savings should be. For those close to retirement, you should have six times your salary in savings by 50, eight times by 60, and 10 times by 67.
Don’t have that amount? Then you’re likely not ready to retire just yet.
Retiring early could mean future financial insecurity
Sure, early retirement sounds great! But only if you have the money to support it. While it might seem like your costs will lower in retirement, in many cases, they actually increase. It also means you’re susceptible to lower Social Security benefits, if you choose to start drawing that money rather than holding out until your Full Retirement Age (FRA).
What’s more, those who leave the workforce early are set up with reduced savings, which can lead to financial insecurity later in life. And let’s be clear, later in life is when you’re going to need those savings most.
Read More:- Tax write-offs small-business owners shouldn’t forget
Health care costs can be a significant burden
In the United States, 80% of adults over 65 years of age have a chronic condition, with 50% having at least two, according to a study done by The University of Texas.
Sure, those older adults receive access to Medicare, and there are ways to bridge any gaps through Medigap insurance providers. But even still, there is a huge financial burden associated with retiring and no longer having workplace benefits.
Read More:- Walmart sues Capital One in credit card brawl
A survey by Fidelity Investments found that, as of 2021, American couples aged 65 would need about $300,000 saved for health care costs through retirement. This number would be even higher for those who choose to retire early and spend fewer years covered by employer-sponsored health care plans.
Early retirement means working harder
Only about 24% of American workers continue to be very confident in their savings for retirement as of 2021 according to a Transamerica Center for Retirement Studies survey. That’s enough confidence the amount will see you through retirement comfortably, nevermind allow you to retire early.
The recent market downturn and potential recession hasn’t helped matters either, with 16% of America’s workforce saying their confidence dropped in 2021 compared to pre-pandemic times. Those seeking early retirement will certainly need to adjust their savings strategies and potentially work longer hours if their goal is to enjoy a comfortable premature retirement.
Considering that the average American lives to be about 76, according to the Center for Disease Control and Prevention, and — depending on when you were born — the full retirement age is around 66, that’s at least a decade of extra savings you’ll need if you want to retire early at say, 56.
Inflation can erode your purchasing power
Speaking of savings and the current market, inflation can make an enormous dent in your savings over time. The amount needed to retire comfortably continues to rise higher and higher as inflation climbs, eating away at savings in the process.
A 2022 study by The Senior Citizens League (TSCL) found the purchasing power from Social Security benefits has fallen drastically — by 40% since 2000, in part due to rapid inflation.
Does this mean you can’t retire early, or even at all? Certainly not. The best advice to prepare you for your future is to meet with your financial adviser. Get on track, discover the best savings options for you, and who knows? You may still be able to enjoy a comfortable early retirement and live the real American dream.
What to read next
- ‘Hold onto your money’: Jeff Bezos says you might want to rethink buying a ‘new automobile, refrigerator, or whatever’ — here are 3 better recession-proof buys
- Americans are paying nearly 40% more on home insurance compared to 12 years ago — here’s how to spend less on peace of mind* with SmartFinancial
- The US dollar has lost 98% of its purchasing power since 1971 — invest in this stable asset before you lose your retirement fund
