When the idea of Social Security came about, few people set aside money for a future retirement or thought about a period in life when they would not work. During the 19th and early 20th centuries, you worked until you could no longer physically do the job. In many cases, seniors ended up living with children and providing for the family in a different way. Social Security helped to change the way Americans look at the golden years.
Retirement is now something everyone dreams of. That period in life where you can live off the money you have saved throughout your career while taking things a little easier. Everyone is told to focus on saving now to enjoy a better retirement, but what are the pros and cons of making retirement planning a priority in your life?
Con - Less Money to Spend Now
Even plenty of Americans making a steady, stable income find themselves without enough to retire on because prioritizing retirement planning does not seem like much fun. Why set aside money for the future when you do not know how long you will live to use that money? Instead, that money can be used for a newer car or a bigger home for the family. There are a lot of things people can do with their disposable income that is more enjoyable than saving for the future.
Con - Some Simply Can't
While some people might opt not to, there are plenty of Americans who may think they simply cannot afford to save for retirement. The problem with this is that Social Security is not the safety net it once was for Americans. The payments received do represent a nice paycheck, but they are not enough to sustain you through all the expenses. Further, just saving $400 a month starting at age 25 can result in $1.37 million in savings by the age of 70 (7% average annual return). This is proof that any amount is better than no amount.
Pro - Many Employers Offer 401(k) Plans
If you are employed directly by a company, odds are that you have access to an employer-funded 401(k). At the very least, your employer will make a monthly contribution to this account to help fund your retirement for you. However, if you want to really prioritize your 401(k), you can take advantage of employer contribution matching. When available, employers will match your contributions to that 401(k) up to a certain percentage. This means they are funding it, you are funding it, and then they are adding a little more to match your funding. If you prioritize putting some of your own money into it, you get more in return.
Pro - There Are Lots of Other Options
Even with Social Security and a 401(k), you do not have to stop there. If you really want to diversify your retirement savings and prioritize a better future for yourself, you have a variety of other options to invest your money into, to secure your future. Roth IRAs and Traditional IRAs offer their own pros and cons, but each allows you to set aside an additional $5,500 each year (total for both) that can help you contribute more each year.
Complexity or confusion should not be a reason to not prioritize planning for retirement. With the help of a financial advisor, you can take a deeper look at your finances and figure out where you can squeeze more money out of your income and improve your retirement savings for the future.
Contact Manhattan Ridge with any questions about your retirement plan today.