Complacency in Society Spells Danger in Retirement

sunset-1931666_640Whilst the survey could hardly be described as scientific, a recent report from one of the biggest money managers in the world, Blackrock, suggests that there is a fair level of complacency among people in US society about how well they are providing for their retirement.

There is a new president of course and a recent speech from Donald Trump resulted in a 1.4% rise in the S & P Index; the question on the lips of some commentators is whether there is any substance behind the rhetoric. Some of Trump’s critics and many objective analysts are suggesting that he appears to be thinking on his feet without necessarily being really knowledgeable on the subject he is talking about. Already some of his pronouncements have come under severe scrutiny and while a section of Americans have renewed optimism because Trump is such a contrast from the politicians that seemed to precede him, complacency in personal finance is extremely dangerous.

Social Security

When it comes to retirement, the Social security system is in trouble. The present level of benefits is unsustainable in the medium term; fewer people are contributing and more are claiming. As life expectancy increases, the latter is a trend that appears irreversible. While the answer to the diminishing funds in the system is an injection of money, in the form of taxation, with a Republican President and a majority in both houses of Congress that is unlikely.

Social security was never designed to be more than a support in retirement with each individual expected to make provisions for themselves through things like a 401{k}. The statistics suggest that only a minority of people have realized the importance of saving towards retirement by putting money away regularly over their working lives. That allows compounds interest to grow the fund significantly. The later an individual starts to save, the more difficult it is to build a comfortable fund for retirement; or the more they have to put aside each month. This can result in the need for a significant lifestyle change that of course is difficult at best.

Misplaced Optimism

There is an argument that rather than the mood being one of complacency, it is one of optimism and that in itself helps to generate growth in the economy. There is a very thin line between optimism and overconfidence. Blackrock’s survey spoke to around 1,000 people each of whom had at least $5,000 in their 401{k] with a current employer. Over half felt they were in a decent position and nearly three-quarters expected to be able to save enough in the years to come to provide for comfortable retirement. Unfortunately, their expectations on future returns seem fraught with danger. The question is whether future returns will match or exceed those of the past. Some professionals believe they will.

The US Census Bureau paints a different picture. It states that only around a third of people has a proper retirement plan. The National Institute on Retirement Security has done a telephone survey of 800 people of whom two thirds had no such optimism. They feared for the future yet the reality seems to be that people appear unwilling or unable to grasp the problem that they will face in retirement if they don’t act now.

Time can be a friend or an enemy; it is up to you. If you want to save sufficient for a comfortable retirement, the sooner you start to set aside a regular amount each month, the more time compound interest has to grow your fund. Time is your enemy when you delay because it is impossible to get real growth in a short period of time. If you have little in the way of savings, and no surplus at the end of the month, you must act immediately.

A credit card balance is expensive and something you must address to get your finances in order and create that surplus. While you may think that further borrowing should not be part of the solution of addressing your debt, a nation 21 loans is a cheaper way to manage your debt because the interest rate charged is much lower than you are paying to the credit card company. Start the process of reducing your debts to create a monthly surplus. You may then be in a position to look at your retirement more closely. Remain complacent without proper plans and your later years are certain to be difficult.

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