We hear a lot about the retirement crisis in America. With a decline in pension availability and concerns about the long-term viability of Social Security, the burden of saving for retirement rests squarely on the shoulders of individuals. According to EBRI, only 17 percent of American workers are very confident they will have enough for a comfortable retirement (see EBRI’s 2018 Retirement Confidence Survey).
Retirement Preparedness Improves With A More Holistic Focus On Financial Wellness
One positive sign is that retirement planning remains the number one financial planning priority for the average person seeking financial coaching guidance. But when you’re burdened with student loan debt, credit card payments, or simply trying to pay the bills, retirement no longer becomes the top priority. The stark reality remains that at some point you will need to plan to reach a state of financial freedom in the future even if you are struggling to deal with financial stress in the present.
It can be quite frustrating to try to plan for retirement while dealing with day-to-day struggles. That is why I believe that we have more than just a retirement crisis in this country. We have a financial wellness issue and the path to financial independence requires major improvements in how we measure and improve our overall financial health. We don’t need more retirement planning education in America. We need more holistic financial wellness coaching programs to help attack the low sense of retirement preparedness.
Building a Financial Wellness Foundation
Perhaps the best path to achieving authentic financial freedom is to not get bogged down with the frustrations that we aren’t doing enough to save for retirement and to do more to improve our own sense of financial well-being. This is especially important if you are already in your 40’s or 50’s and still trying to take control of your financial life. These best practice guidelines can help you focus on building a financial foundation to achieve a greater sense of financial wellness:
- Establish some money to cover emergency expenses (think “starter” savings).
- Contribute enough in a retirement plan at work to capture the full employer match.
- Eliminate any high interest debt (e.g. greater than 6%).
- Fully fund your emergency savings with enough money to cover 3-6 months of living expenses.
- Aggressively save as much as you can in a 401(k) or 403(b) plan, IRAs, and health savings account. (Somewhere in the range of 10-25% of pay or more is usually ideal.)
Explore Alternative Ways To Increase Your Retirement Income And Lower Expenses
The core financial behaviors mentioned above are foundations of financial wellness. For those seeking other ways to bridge the retirement savings gap, there are several other strategies to consider. Here are a few ideas:
- Consider delaying retirement or at least weigh the possibilities of another job if you need a less stressful or physically demanding environment.
- Don’t wait! Downsize your expenses now to aggressively free up potential savings.
- Consider ways to leverage the equity in your home through downsizing, renting out your space, or reverse mortgages.
- Focus on paying off your mortgage and other debt by your desired retirement age.
- Don’t take on any extra debt.
- Maximize Social Security benefits as a couple using spousal benefits if you are married. Consider delaying Social Security to age 70 if you have at least average life expectancy and can afford to wait to start receiving your income.
- Don’t miss any potential Social Security benefits from an ex-spouse if you were married 10 years or more.
- Sell valuable but unneeded items (e.g. old jewelry), donate items for tax deductions, or sell clothing.
- Consider retiring abroad in lower cost of living locale.
- Spend a season of retirement living big in a tiny home, sailing, or traveling the country in an RV or camper van.
- Factor in plans to work on a part-time basis for a few years. Better yet, turn a hobby into a business opportunity.