Two Trends That Could Put Your Retirement at Risk

December 17, 2024

Retirement is supposed to be a time to enjoy what you’ve worked so hard to build, but this dream is slipping out of reach for many Americans. Two alarming trends are converging – rising debt levels and insufficient retirement savings – creating serious obstacles for future retirees. Here’s what’s happening and what you can do to help protect yourself:

Trend 1: Rising Debt Levels are Draining Financial Stability

Debt levels in the U.S. are skyrocketing. According to a report from the New York Federal Reserve, credit card debt continues to climb, recently hitting a new record high in September. Even worse, total debt, including mortgages, auto loans, and student loan balances, has also reached new highs. On top of that, delinquency rates remain high, with credit card debt delinquency hovering close to 9%.

This growing debt burden makes it harder for people to save for retirement. When you’re focused on making monthly payments, there’s often little left to put toward long-term goals like building a nest egg. If managing debt feels like an uphill battle, imagine the stress of retiring without sufficient savings.

Trend 2: Retirement Savings Crisis

A lack of savings is another major issue. A recent AARP study showed that 20% of workers aged 50 or older have no retirement savings whatsoever. Even more concerning, nearly half of the U.S. workforce is not offered a pension or retirement savings program through their employer.

Why is this happening? Many small businesses, which employ a significant portion of the workforce, struggle to offer retirement benefits. Tight budgets and limited resources mean these employers often can’t afford to set up and fund employee retirement plans.

This gap in access to retirement savings plans is a problem not just for potential retirees but for all of us. If millions of Americans arrive at retirement without adequate savings, the strain on public assistance programs like Medicaid and food assistance programs will likely increase, affecting taxpayers and public resources.

What’s the solution?

While these trends are troubling, there are proactive steps you can take to help safeguard your financial future.

1. Start an IRA

IRAs are powerful tools that can help you build a nest egg, even if your employer doesn’t offer a retirement plan. Here are some considerations to help you decide which type of IRA is right for you:

Traditional IRA: Contributions may be tax-deductible, making it an attractive option if you’re in a higher income tax bracket. However, withdrawals during retirement are subject to income tax.
Roth IRA: While contributions are made with after-tax dollars, withdrawals in retirement are generally tax-free. This can be a beneficial choice if you’re in a lower tax bracket now but expect to be in a higher one later.

For 2024 and 2025, you can contribute up to $7,000 annually, with an additional $1,000 catch-up contribution if you’re 50 or older. Consider using your year-end bonus to help jump-start your IRA, or use a portion of your new year pay raise to help begin making monthly contributions.

2. Look for Employers with Strong Retirement Benefits

If you’re thinking about changing jobs, it is crucial to consider each company’s available retirement plans as part of your decision process. Many larger employers even provide 401(k) plans with matching contributions, essentially giving you free money toward your retirement.

3. Make a Plan

Taking control of your financial future is key. Start to make a plan by evaluating your income, expenses, and goals:

Identify areas where you can cut back and redirect that money toward savings or paying off debt.
Build an emergency fund to prevent unexpected expenses from derailing your retirement goals.

If making a plan feels overwhelming, consider working with a financial advisor who can help guide you along your financial journey. Working with an advisor can help you create a plan tailored to your unique needs and goals.

Conclusion

The challenges of rising debt and insufficient retirement savings are real, but they don’t have to define your future. By taking small, intentional steps today, you can start building a foundation for retirement. Don’t wait – start planning now.

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