Credit Expert Confession: I’m Afraid of Retirement

I’m not easily rattled. When it comes to fear, I’m not shaken by spiders, horror movies or even unknown sounds on a dark city street. As a 30-something journalist, wife and mother, my greatest fear boils down to one word: retirement.

I’m not alone in my trepidation. A Transamerica Center for Retirement Studies survey revealed that 41% of Americans are doubtful about their ability to retire. For younger generations, the goal is more difficult than ever thanks to a new set of challenges.

Life Expectancy

According to the Center for Disease Control and Prevention, the current life expectancy for Americans is 78.8 years. Although living longer can be a comforting thought, it’s also financially complicated. A retiree who leaves the workforce at 65 reportedly needs approximately 80% of their final income to account for every year of retirement. Assuming you earn $100,000 per year, your savings should be — at minimum — $1.2 million. That certainly isn’t a subtle amount.

The Uncertainty of Social Security

While it’s likely that Social Security will exist in the decades ahead, don’t expect the payout to support your old age. A 32 year old earning $100,000 per year will only qualify for $1,830 in monthly benefits by the age of retirement, according to the Social Security Administration’s quick calculation tool. Unfortunately, this meager sum isn’t enough to sustain the average post-employment lifestyle.

Student Debt

My college days are long behind me, but the student loans that helped me fund my education are still very present in my life. Setting aside monthly funds for education debt can mean sacrificing retirement savings.

The Future for Children

Independence isn’t a given in today’s world. In fact, 32.1% of adults ages 18 to 34 live at home with their parents, according to a Pew Research study. The challenges of unemployment, a high cost of living and student loan debt have forced this generation back into the nest — whether they like it or not. Will circumstances change as my child ages, or can I look forward to a 30-year-old sleeping in my basement? I don’t know, but I worry about the answer and its impact on my retirement income.

3 Ways to Help You Address These Concerns

These concerns are common for people in every age group, and it begs the question, What is the solution? These risks aren’t likely to go away as time passes, but there are a few ways to minimize the consequences.

1. Save as Much as Possible

Time is a valuable asset when saving for retirement, and it’s never too soon to invest.

• Pay Off Debt Sooner: Losing money to interest fees means you’ll have less to invest for the future. Talk to a financial planner about the best way to tackle debt and prioritize savings. A healthy balance is essential.

• Max Out Your Retirement Contributions: Many companies match a percentage of their employees’ 401K contributions. Check with your employer and see if this is the case, and then take advantage of this as soon as you can. It’s a good idea to max out your matching contributions and consider upping your monthly investment as well. For example, suppose you currently set aside 10% of your income for retirement. Would a budget overhaul allow you to increase your savings to 15%? Think carefully about your daily spending choices and how they will impact your future.

• Consider Tax Implications: Investment vehicles come in many forms, and taxation could save or cost you thousands of dollars. Strategize with your financial planner to determine the best way to invest.

2. Live Within (or Below) Your Means

The housing crash of 2008 taught us a valuable lesson about the dangers of overspending. It’s easy to risk your financial safety by splurging too often or borrowing too much. In reality, I feel it’s wise to keep 15% of your income in liquid savings and another 15% or more for retirement. Do you have the ability to funnel 30% of your income into savings? If not, perhaps it’s time to rethink your budget.

3. Focus on Credit Health

Retirement is one of many factors that benefits from credit health. A high score allows you to save money on variable and fixed interest rates, insurance premiums and even qualifies you for better employment. (You can see how your habits are affecting your credit by viewing two of your credit scores for free, updated each every 14 days, on Credit.com.)  

None of us can predict the challenges we’ll face as retirement nears. Although my doubts and fears are likely to rage well into my 60s, I’ve found that saving for those final years is the best way to prepare.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

Image: Ridofranz