Since the Great Financial Crisis, there has been a common concern among those of us saving for retirement. In the last three years, that concern has slowly become a reality for an increasing number of people.
Today, more than half of Americans are behind on their retirement savings, and a third still have a long way to go:
More than half, 56%, of American adults in the workforce say they are behind where they should be when it comes to saving for their retirement, including 37% who reported feeling “significantly behind,” according to a new Bankrate survey. Nearly a third say they would need $1 million or more to retire comfortably. [emphasis added]
Attempting to explain why they might feel that way, Christine Benz, director of personal finance and retirement planning at Morningstar, said:
Comparing yourself against benchmarks might make adults near or in retirement stressed if they are told that they need an additional six-figure sum to retire. “But I do think specific information is better than no information,” Benz said, of benchmarks.
Benchmarks may be very misleading… According to Vanguard’s How America Saves Report 2023, those aged 25-34 have an median 401(k) balance of $11,357. Even the cusp-of-retirement group aged 55-64 have a median balance of $71,168.
That’s so much less than they think they’ll need…
For example, if a 55-year-old thinks they need $1 million to retire comfortably and they only have the typical $71,000 saved so far, how does it help them to know they’ve saved about as much as the typical American their age?
Honestly, retirement savings balances are so incredibly out of whack with reality that the benchmarks above are irrelevant. At best, they might provide a false sense of comfort – “At least I’m not doing worse than everybody else my age.”
So let’s throw benchmarks out the window! Here’s what matters:
- Your definition of a comfortable retirement (goals and needs, hopes and dreams)
- standard of financial security, including expenses
- current personal situation
These things may change over time. (Depending on your age, saving $1 million for retirement might actually be meaningless by the time you get to retirement age.)
But enough hand-wringing. Today, we’re going to focus on positive steps you can take today to get your retirement savings back on track.
First, build a solid foundation
Whether you’re young or old, having a solid financial foundation for your retirement planning is the ideal situation.
But most of the younger generation are seeing the higher cost-of-living that has penetrated most of the U.S. economy as a barrier to building that foundation. According to some experts, however, that’s really the only way to be successful.
Douglas Boneparth, a certified financial planner and president of Bone Fide Wealth in New York, said that now is the time to focus. Not tomorrow!
This is really the time to build a solid foundation that is going to allow you to be successful throughout the many next decades of your financial life.
The article offers three key pieces of advice for younger Americans (but they’re just as applicable to older Americans):
#1: “Get in the habit of being a consistent saver,” Boneparth said.
#2: A.J. Barkley, head of neighborhood and community lending at Bank of America said: “They should be thinking about retirement now.”
#3: Ted Jenkin, a CFP and CEO of oXYGen Financial in Atlanta warned against "fear of missing out" on making a large income: “Your friends are not posting their net worth on Instagram and TikTok, so be wary that people may not be doing as well as they appear on social media.”
We’ve previously discussed what overconfidence does to the best retirement plans. Learn more about building a solid foundation here.
Once you have a solid foundation in place, you’re ready to move on…
Concentrate on diversification
Mel Lagomasino, CEO and managing partner of WE Family Offices reiterated the importance of diversification:
“The No. 1 cause of great loss of wealth is concentration,” said Lagomasino, emphasizing the risk of having “a lot of eggs in one basket.”
Concentration risk was magnified in the tech community during the collapse of Silicon Valley Bank and First Republic earlier this year, said Rodney Williams, co-founder of SoLo Funds. “That effect was felt across so many different areas.”
That’s why “diversification is key,” he said.
Diversification is key.
If you have a mortgage, you’re already invested in real estate.
If you work in an economically-sensitive sector (technology, financial services, real estate, travel) you should consider diversifying with countercyclical assets that hold up during recessions. You don’t want to lose your income and take a loss on your savings at the same time.
If you work in an economically-insensitive sector (healthcare, utilities, food, personal products) you may want to consider diversifying with economically sensitive assets.
Learn more about diversification for tough times here.
Speaking of which, here’s something we can all stand to do more of…
Eliminate high-interest debt (especially credit cards)
We have already written about the reason why you should focus more on building assets and less on acquiring liabilities in a piece that revealed the record-breaking debt Americans are buried under. So I won’t recap that discussion.
The solution to that problem isn’t easy, but it’s important. High interest credit card debt is money you’re still paying for things you’ve already enjoyed. It’s the opposite of a birthday present. Focus on paying down the balance, and reduce your dependence on credit cards as much as possible.
One senior credit analyst shared a helpful tip:
One of the best ways to get rid of credit card debt is to consolidate it by using a 0% interest balance transfer card, but you may need to already have a credit score of 700 or higher to get one.
Matt Schulz, senior credit analyst at LendingTree, added: “The ability to go up to 21 months without accruing any interest on that balance is really a game changer. It can save you a lot of money. And it can dramatically reduce the time it takes to pay that balance off.”
Even for people with less-than-excellent credit, there’s another option to consider:
[...] contact your card issuer and ask for a lower credit card rate.
Just make the call. A recent Lending Tree survey found about three-quarters of consumers who asked the issuer for a lower interest rate on their credit card in the past year got one — and they didn’t need a great credit score to get it.
The final solution for most people is to simply make a plan to repay your credit card debt. A Forbes piece offered two ways to do just that, the "snowball" and the "avalanche" methods:
Debt snowball. This method has you paying off the card with the smallest balance first, then moving on to the next card with the smallest amount and so on. Some find this way gives them the psychological boost they need to stick to their debt repayment plan.
Debt avalanche. With this approach, you’ll make the biggest payments to the card that has the highest interest rate. This method may take you longer, but you’ll get out of debt paying less interest than the debt snowball method.
Regardless of the approach you choose, the important part is to make a plan and stick with it.
If you need motivation, consider my colleague Phillip Patrick’s insight that excessive debt is the greatest risk to your financial future.
How can physical precious metals help?
When we think of long-term saving, we should focus on resilience. You want your savings to be robust whether the economy is booming or in recession. You want a safe haven store of value in the bad times, and an inflation-resistant asset in the good times.
These are tough criteria to meet, but one asset does the trick: Physical precious metals.
Gold has historically outperformed inflation, and is more liquid than you might think (which can be helpful during economic turmoil). Physical precious metals are real, tangible assets, which means they’re less volatile than most financial products.
Diversifying your savings with physical precious metals may be quite beneficial! But don’t expect your financial advisor to recommend them, because they aren’t licensed or trained for the industry.
Get your retirement saving back on track! Then, you can take control of your own financial future. Get all the information you need to evaluate physical precious metals in our free guide here.
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Phillip Patrick is Birch Gold Group’s primary spokesman and educator. He was born in London and earned a politics and international relations degree at the prestigious University of Redding in Berkshire, England. Growing up in London, he saw the risks of government overreach and socialist policies first-hand. He spent years as a private wealth manager at Citigroup on Lombard Street (the Wall Street of London). He joined Birch Gold Group as a Precious Metals Specialist in 2012.
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