23 May 2018

6 Ways for Pre-retirees to Get Secure Retirement

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Risky spending behaviors, high debt and financial illiteracy jeopardize the financial futures of many pre-retirees ages 51 to 61 years old, according to a recent report published by the Filene Research Institute. In addition, the data show that many pre-retirees use expensive credit card borrowing, lack both short-term and long-term financial management and planning and use financial advice only sparingly. There is hope for pre-retirees: The report identifies steps Americans can take to increase wealth at retirement and to improve retirement security.           

Here's a look at those steps:

1. Open a retirement plan/account if you don't have one. Nearly three in 10 pre-retirees don't have a retirement plan or account, according to the report. If you're among those pre-retirees, consider enrolling in your employer's 401(k) plan if there is such a plan and contribute the minimum amount necessary to receive the full match from your employer. Many companies will match your contribution 50 cents on the dollar, up to 6% of your contribution. In other words, if you contribute 6%, your employer will contribute 3%, making your total savings rate 9%. That's much better than the personal savings rate for the USA, which stands at 5.4%.

If you don't have a 401(k), open an IRA at a bank or brokerage firm, then have a set amount automatically and electronically withdrawn from your checking or savings account at least every pay period.

2. Create a schedule to pay down your long- and short-term debt before retiring. About 60% of pre-retirees have at least one source of long-term debt, and 26% have at least two. The most important factor driving the increase in debt is the much higher value of primary-residence mortgages. Check with a bank or mortgage broker to find ways to reduce the term and/or interest rates on our mortgage. Consider earmarking a portion of your income to pay down the principal on your mortgage, over and above your monthly payment.

3. Be prudent when using credit cards. Nearly 40% of pre-retirees use credit cards expensively and the very same percentage feel heavily indebted, according to the report. What's more, one-fifth of pre-retirees have used alternative financial services, such as payday loans or pawnshops, in the past five years, the report noted.

According to the report: 74% percent of all respondents in the survey use at least one credit card, and 56% do not always pay the full amount due — a behavior that exposes pre-retirees to high fees. Altogether, a troubling 39% of individuals ages 51–61 report at least one expensive credit card behavior.

How can you be more prudent with your credit cards and your debt? The easy answer is to seek help from a qualified financial professional be it your bank or a legitimate credit counseling agency.

4. Establish a rainy-day fund. Only a minority of 51- to 61‑year-olds have made provisions for rainy-day funds to carry them through unexpected economic shocks, according to the report. The best advice: Start small and don't get discouraged. Set aside enough to pay for at least one month of living expenses, and target three to six months as your goal if your job is steady and the economy is sound, or up to 12 months if your job isn't stable and the economy isn't healthy.

5. Calculate how much you will need in savings to fund your retirement after you stop working. Less than half of pre-retirees have even attempted to calculate the level of savings they will need once they stop working, according to the survey. One simple way to figure out if you've saved enough: Divide how much you've saved by your household's income. You'll need at least 11 times your pay at age 65 to expect to have sufficient assets to get through retirement, according to 2012 The Real Deal: 2012 Retirement Income Adequacy at Large Companies. 

6. Take steps to increase your financial literacy. The smarter you are about money, the more likely it is you'll avoid making mistakes. And the fewer mistakes you make, the richer you'll be.

Click here to access the full article on USA Today.

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