People in their 20s to 50s are being encouraged to plan, save and invest in their own personal (or private) retirement programs. For various reasons, though, there is a reluctance to make this provision for what should be one’s “Golden Years.”
In both the United States and United Kingdom, a mistrust of financial institutions has developed following the 2008 recession. Low interest rates offer little encouragement to save.
Another demographic factor is that adult children often stay in the parental home longer, or return to it, either after study, or relationship breakdown, financial difficulties or because they are daunted by the cost of housing.
The impact of this is that parents delay or defer making provision for their time of need. Women in particular seem to sacrifice funding for their future in order to help their children. Widowhood, disability and divorce can also impact personal financial planning.
In the U.K., the state retirement age used to be 60 for women and 65 for men. However, recent legislation means that for those born after 1952, their date of eligibility to claim state retirement benefits has been gradually pushed back to the age of 66 or 67, depending on their date of birth.
A basic pension rate is available to those who have contributed to the state for over 10 years. Free eye tests and prescriptions are available from age 60 and in certain circumstances, free dental care may also be available. Benefits are also available to help with heating costs during the winter months. Free bus passes are available in many areas of the U.K., and a discount card is available for reduced train fares.
By comparison, in the U.S., the Social Security system will pay a pension of about 40 percent of one’s previous earnings.
Given that some costs may reduce in retirement — transport to work, for example — others may increase, such as medical bills, one can understand that prior thoughtful provision is necessary to ensure that the gap between government benefits and personal expectations and needs is met. An Individual Retirement Account is one step toward this.
In both countries, the benefits of compounding (interest and dividends payable on long-term investments) mean that money invested, for example, between 10 and 20 years ago is likely to provide more income than money invested within the past two years. This is why it is important to contribute to either workplace or personal pensions in the earlier years of one’s working life, whenever possible.
There are tax advantages to saving money in retirement programs, and often employers will contribute a percentage toward employee retirement.
The U.S. Department of Labor states that less than half of working Americans have calculated what they need to live on in retirement. As people live longer and (hopefully) healthier lives, seniors need to plan for 20 to 30 years past the age that they stop work.
Strategies that seniors are using include diversifying their savings and investments to spread risk, downsizing property to release capital and taking part-time employment, whilst being mindful of any tax implications.
Finally, other important things to remember are that your children and grandchildren still have many years ahead of them to earn money for themselves, so be wise about financial gifts. Be cautious about whom you select to offer you financial advice and wary about giving your personal Social Security details to others.
As with any new adventure in life, retirement usually works best if it’s been prepared for.
Clark, based in Somerset, England, is associated with Progress Through Business (website: ProgressThroughBusiness.com).
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