By Michael J. Searcy
Every journey you take on an airplane comes with about a 0.0001 percent chance that you won't arrive at your final destination. With such a small percentage for failure, it's no surprise people feel secure flying all over the world, every day. Now what if you boarded a plane and the flight attendant came over the speaker saying, "The Federal Aviation Administration has requested we inform you there is now an 85 percent chance of flight failure"? I'm picturing people scrambling for their luggage and pushing their way through the aisles and off the plane.
Did you know many American's retirement plans are facing this exact potential for a crash? The Department of Labor has been screaming warnings about retirement over the 'loud-speaker,' saying that many people won't make it to retirement age with enough funds to cover their expenses in retirement. It's easy to worry about our immediate safety and be less concerned with our future safety, so Americans continue to overlook these warnings because we aren't feeling an immediate impact. However, with rising health care costs, lifespans and cost of living, many retirees may be forced to choose whether they will pay for their medicine or purchase food to eat each month. The chance of that person being you is more realistic than you realize. With an 85 percent chance of failure, it's time to get off the current flight we're on and make alternate plans to reach our destination safely and on time!
Consider these principles for changing or adjusting your plan:
1. Don't rely on only one source for retirement – Relying on any one source for your retirement, whether it's your 401k account, an inheritance, the sale of your business, or Social Security, is not an adequate plan to fund your retirement. An extreme market downtown, piece of legislature, or other unexpected situation could reduce or eliminate your planned source of retirement funding, so having multiple sources can help you ward off problems.
2. Don't underfund your retirement plan – With 401k and individual retirement plans being elective, it is up to each individual to save enough in their retirement plans. The preference for cash today over cash for retirement in the future has led many to underfund their plans. If you consider that pensions used to automatically make people save between 15-20% of their income, use this as a guideline of how much you should save in your retirement accounts (or more if you're catching up).
3. Social security is not a complete retirement plan – The Social Security Administration's website states that, based on current law, "by 2033, the payroll taxes collected will be enough to pay only about 75 cents for each dollar of scheduled benefits." Social Security benefits may pay less than half of what you were earning before retirement, while your income needs may be greater than this amount. Consider Social Security benefits a supplement to your retirement plan, at best. Based upon its current financial stability, many advisors caution individuals under age 50 to not count on any Social Security benefits as part of their retirement plan.
Making contributions is what will keep your plane in the air until you reach your destination. Whether you're ignoring the warnings altogether, or simply don't understand the impact the warnings will have on your financial future, the fact is you may be heading for a crash. It's better to start funding your retirement today than to try to play catch-up as the plane is heading toward the ground. Will you realize the importance of saving in time to save yourself?
Originally published in Leawood Lifestyle
Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this content, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for you or your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from Searcy Financial Services, Inc.
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