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Don't Wait Before It's Too Late to Save for Retirement


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    A whopping 25% of Americans have no retirement savings at all and 40% of Americans aged 45-54 have less than $10,000 saved up for the future. Both are very worrying numbers and, if left unaddressed, are ticking time-bombs that will affect the American (and potentially global) economy in ways we may only be beginning to understand.

    While it's true there are a myriad of reasons why Americans have less in retirement savings than years past, I want to focus mostly on what individuals and couples can do to start saving for retirement by themselves and, if they have the ability, with the help of their employer.

    Saving For Retirement on Your Own
    There are a number of ways you can save for retirement on your own, even if you're a "late bloomer" and are getting a late start. It's never too late to start saving...until it is.

    First, you will need to sit down and list all of your monthly expenses (mortgage/rent, bills, food, credit card payments, etc.) to get a general idea of how much money you are spending each month and how much you have left over after taking care of all your obligations. You will then have a pretty good idea how much money you have each month to set aside for savings.

    The next step would be to begin saving whatever amount you are able to without over leveraging yourself. Most financial advisers recommend setting aside 10-15% of your income if you are able to, but any amount is better than nothing at all. One thing is clear though - you don't want to touch this money for a long time, so do not make it easy to withdraw from until it's time to.

    So, something like an Individual Retirement Account (IRA) can be better than a general savings account because they are typically managed by a third party and have a early withdraw penalty, which may discourage people from dipping in to their funds too early. They also tend to earn you more money in the long run compared to a general savings account.

    Saving For Retirement Through Your Job
    If you are one of the roughly 50% of Americans whose employers offer retirement plans, typically a 401(k), and you haven't signed up for it yet then it may be a good idea to do so soon. The vast majority of employers offer to "match" up to a certain percent of your income, meaning if you are able to contribute 4% of your monthly income to your 401(k) and your employer matches that amount then you are actually saving 8% of your income each month towards your retirement. That money can add up pretty quickly.

    Whatever route you take, it is imperative to begin saving whenever you are able to. It's easy to push it off until tomorrow, but the longer you wait the more difficult it will be to save the amount you need for later in life.

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    All good points. This is made even worse by the average amount of debt Americans carry around with them throughout their life. It's hard to even begin saving at all for the future when you are struggling just to make ends meat today, and have lots of debt.

    These numbers are equally startling (Experian report as of 2019):

    Average American debt by age

    Age group -- Average debt

    18–23 (Generation Z) -- $9,593

    24–39 (Millennials) -- $78,396

    40–55 (Generation X) -- $135,841

    56–74 (Baby Boomers)-- $96,984

    75 and above (Silent Generation) -- $40,925

    So the question becomes, which is smarter to do, pay off all debt first or save/invest money and make minimum payments on debt? I think it depends. I think it's best to save enough at first until you have a good emergency savings account, to save yourself from going further into debt when something out of the blue inevitably comes up, like an unexpected car repair or medical bill. Something like $500 - $2000 for an emergency savings account should suffice.

    That provides a buffer. Then consider how much money you could save on interest by paying off debt early vs how much money you could earn through compounding interest by saving money.

    If you have credit card debt with interest rates of 15-30% (unfortunately these are typical interest rates) then it makes more sense to pay those off first before you save/invest, unless you magically have a savings account/investment opportunity that yields you crazy returns.

    Once you pay off your debt that carries interest rates of 10% or more, that's when it makes the most sense to now start thinking about investing. If your mortgage, auto or student loan carries an interest rate of 3-7% but you can make 12% interest returns on XYZ investment, then clearly you are better off investing your money and making minimum payments on your debt in the long run.

    So it's all a balancing act, I think, of eliminating debt and investing. But just saving your money in a low yield savings account doesn't make sense to me at all until you get rid of debt that is accruing high interest.

    But hey, if you are relatively debt-free already, you are way ahead of the game. And you should totally be investing as early as you can, in all the ways you outline.

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    WyattTown Wrote:

    Average American debt by age

    Age group -- Average debt

    18–23 (Generation Z) -- $9,593

    24–39 (Millennials) -- $78,396

    40–55 (Generation X) -- $135,841

    56–74 (Baby Boomers)-- $96,984

    75 and above (Silent Generation) -- $40,925

    Is this all debt (including mortgage) or debt not including mortgages? If these numbers don't include mortgages then no wonder why we're facing this retirement savings crisis. If the average American is holding onto that much "bad" debt then we're in big trouble.
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    The Big Burry Wrote:
    WyattTown Wrote:

    Average American debt by age

    Age group -- Average debt

    18–23 (Generation Z) -- $9,593

    24–39 (Millennials) -- $78,396

    40–55 (Generation X) -- $135,841

    56–74 (Baby Boomers)-- $96,984

    75 and above (Silent Generation) -- $40,925

    Is this all debt (including mortgage) or debt not including mortgages? If these numbers don't include mortgages then no wonder why we're facing this retirement savings crisis. If the average American is holding onto that much "bad" debt then we're in big trouble.

    This is all debt, including mortgages. Home loans are considered 'good' debt for sure. But its still debt. You don't outright own your house until its paid off, the bank or lender does. Of course its 'good' because you have equity building over time while paying off that home loan. But it's still debt at the end of the day.

    If you adjust by taking out mortgages, the numbers drop a lot. But I don't think that's always fair to exclude, as one of the main stressors for people is being upside down on mortgage loans they struggle to pay on. And hope and pray they don't lose their job so they can continue to afford the payments on their home so it doesn't get taken away.

    Overall this report also shows that overall debt in all categories (except for HELOC) is growing pretty dramatically in the last decade:

    Growth by Debt Type Since 2009

    Type / Total Debt 2009 / Total Debt 2019 / % Change

    Mortgage / $8.4T / $9.6T / +14%

    Auto loan / $716B / $1.3T / +81%

    Student loan / $658B / $1.4T / +113%

    Credit card / $700B / $829B / +18%

    HELOC / $729B / $420B / -42%

    Personal loan / $237B / $305B / +29%

    Retail card / $59B / $90B / +51%

    Worth pouring that report more. Very informative.