83% of Americans could end up cash-strapped in retirement for this reason | Smart Switch: Personal Finance

(Maurie Backman)

Many seniors routinely rely on Social Security to cover their bills in retirement. But that is a big mistake.

Social Security it will only replace about 40% of the average worker’s pre-retirement income. And most retirees need about twice that income to maintain the lifestyle they’ve grown accustomed to.

Complicating the problem is the potential for social security cuts. Once the program’s trust funds run out of money, Social Security may have to cut benefits to address the revenue shortfall.

Image source: Getty Images.

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And the time for those potential benefit cuts isn’t that far off. The trustees of the program recently estimated that its trust funds could run out in about a decade, putting seniors in a more difficult financial situation sooner than many may anticipate.

It is for these and other reasons that saving independently for retirement is so important. But in a recent survey by First National Bank of Omaha, only 17% of Americans prioritize saving for retirement. And that means many people are at risk of falling short financially during their senior year.

Why time is of the essence

A good 65% of Americans fear that they will not be able to retire at age 65, which is not full retirement age for Social Security, but is when Medicare eligibility begins. Despite that, most people who responded to the previous survey don’t make saving for retirement their top priority this year.

But there’s a danger in putting off saving for retirement: You lose time to benefit from investment earnings. When savers spend funds on a IRA or 401(k) plan, that money can and should be invested for further growth. And the longer your investment window, the more wealth you can accumulate.

As an example, imagine that you are able to part with $400 per month for retirement savings purposes. Save and invest that amount over a 40-year period, and you’ll see a savings of more than $1.2 million if your IRA or 401(k) offers an average annual return of 8%, which is just below the stock market. average. (Of course, that return assumes you’ll be investing a lot of your savings in stocks, which is a smart thing to do when retirement is many years away.)

But watch what happens when you narrow that window down to 30 years: Your ending balance drops to $544,000. And with a 20-year investment window, that comes down to $220,000.

That’s why it’s essential to prioritize retirement savings, and the sooner you do it, the better off you’ll be. You may need to change some expenses for IRA or 401(k) contributions to be consistent. And to be clear, right now, getting funds for a retirement account is far from easy, especially when the costs of living are rising across the board as a result of rampant inflation.

But if you wait too long to accumulate savings, you run the risk that you won’t have enough retirement income to pay your bills, especially if the cuts in Social Security benefits occur to a more extreme degree than anticipated.

The $18,984 Social Security Bonus Most Retirees Completely Overlook

If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: An easy hack could pay you up to $18,984 more… every year! Once you know how to maximize your Social Security benefits, we believe you’ll be able to retire with the confidence and peace of mind we all seek. Simply click here to find out how to learn more about these strategies..

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