The 2008 financial crisis affected many people’s retirement plans, as most families saw their net worth plummet along with the stock market and housing prices. When the Federal Reserve lowered interest rates (common monetary policy in a recession), it created an environment where savers received a much lower return on fixed-income investments. At the same time, many investors became fearful of re-investing in stocks. Longer life expectancies, less help with retirement funding, and economic and global circumstances are making it more difficult to retire. Here are some of the causes of this retirement crisis, the effects, and what you can do about it to come out on top. To avoid this circumstance, first, you’ll need to reduce your debt and determine how much money you’ll need to retire. To sustain your standard of living, you should plan on 10 times the annual salary of your final working year. Second, you shouldn’t take money out of your retirement plan, even in an economic downturn. The challenge here is that as the markets fluctuate following global and economic circumstances, the value of your retirement plan may drop. It can be tough to ride out the downswings and resist the temptation to cash out your 401(k). If you contribute to your retirement plan during down times, you’ll be purchasing investments at lower prices. When the market reverses again, your retirement plan value will increase as well because the prices of your existing investments will rise. This is known as dollar-cost averaging. Third, contribute more than the minimum to your plan and save outside of it as well. This will accelerate your earnings—and if your employer matches your contributions, it can further speed up your returns. Fourth, use a Roth IRA instead of a regular IRA. Roth IRA contributions are after-tax contributions, so you pay no taxes when you take distributions. This keeps you from having to calculate for and worry about taxes in retirement. The Employee Benefit Research Institute (EBRI) found in 2020 that nearly half (48%) of workers retire before they planned to. This means that workers will need to work more or harder to be prepared financially for retirement. The Bureau of Labor Statistics (BLS) forecasts that by 2030, the number of workers over 55 will grow to comprise 25.1% of the labor force. These workers will be in service sector jobs, where most of the job growth will occur. Many of these jobs—such as grocery clerks, waitresses, and substitute teachers—were generally held by younger people in the past. According to EBRI, 71% of workers surveyed in 2020 expected to work for pay in retirement. Many retirees also claimed to work for pay in retirement (31%). The anticipation of needing to work for pay in retirement stems from the belief that retirees may have no other choice because they won’t be able to afford to fully retire. Another reason workers at the lower end of incomes can’t afford to retire is because Social Security is facing shortages, which means that benefits may be reduced. This will especially affect workers who are forced into early retirement. If workers are forced to retire early, they might also be forced to tap into their Social Security benefits. The earliest you can begin to withdraw from social security is age 62; however, this can result in a benefit drop of nearly 30%. If you are forced to retire and draw benefits, you are still able to work but your earnings will be limited. If you earned more than $18,960 in 2021 and draw Social Security, you will have $1 deducted from every $2 you earn above the limit. After the stock downturn in 2000, many people who were burned by the stock market put their money into their homes. Many Boomers lost their retirement savings and their homes during the 2008 financial crisis. Those who lost their jobs as well had no choice but to take whatever work they could to survive. The top 20% of households with the most income took in more in 2018 than the other 80% combined—and the imbalance continues to grow. While the top percentage of household earners continue to make more gains, middle-class incomes are slowing in growth with the size of the middle class shrinking. With wage growth stagnating, the cost of living becoming more expensive, the gap between the top earners and low earners widening, and the differences in pay between genders, it is becoming more difficult for certain demographics to save for retirement. Women will need to save more on average than men for retirement for the reasons mentioned previously. Regardless of gender and pay inequalities, workers in the shrinking middle tier and growing lower-earning tiers will have to reduce their expenses to save more for retirement. Organizations such as the Haas Institute for a Fair and Inclusive Society and the Organisation for Economic Co-operation and Development (OECD) have been working to promote ideas that can combat the disparities in income. The OECD has suggested that governments need to work to respond to the inequality of income by implementing policies to promote job growth, limit tax breaks for high earners, and promote education, skills, and training. Next, your health should be one of your main concerns. Keep yourself healthy by following your doctor’s advice for medication, exercise, and diet. If you have loved ones who might need care, look into long-term care insurance for them before they need it, and work with them to fund it. Take control of your career and income by preparing yourself for downsizing or layoffs, and prevent obsolete skills by making yourself more valuable to an employer. Find methods to improve yourself professionally, and begin your own career planning by setting some career goals. Then, look into some methods for planning retirement. There are a few simple steps to laying out a general plan to get started.
