5 Financial Downsides to Retirement

retirement

Retirement sounds terrific. You finally get to take a break. You’ve worked all of your life for this. However, is it really all that it’s cracked up to be? There are many downsides to retirement that people don’t always talk about. In fact, there are some big financial downsides to retirement. It’s important to be aware of those before you retire. Here are the five biggest retirement problems:

1. Inflation Keeps Rising

The number one financial problem that people face in retirement is inflation. The cost of living just keeps going up. It doesn’t matter to the world that you’re getting older and living on what may be a fixed income. The price of milk and utilities will just keep increasing.

LIMRA reports that retirees suffer from the effects of inflation even when inflation rates are relatively low. They demonstrate that just a 2% annual inflation rate could cause the average retiree to lose nearly $74,000 within a 20-year retirement period. If you haven’t accounted for inflation when planning for retirement then you could end up financial trouble.

2. Retirees Pay a Lot in Taxes

Many people assume that they’re taxes will go down in retirement. After all, you’re not working as much, so you’re not going to earn as much, right? Wrong. Many people actually earn as much or more after retiring, especially if they planned ahead financially for secure retirement.

Unfortunately, that means that you have to keep paying taxes. You don’t have an employer taking those taxes directly out of your paycheck anymore. Therefore, you’re going to have to deal with that yourself. Moreover, remember that your 401(k) money, which wasn’t taxed when you set aside, is taxable income when you use it in retirement.

3. You Have to Make the Money Last

Here’s the obvious but important thing about retirement: you’re spending money and not earning any. Ideally, you’ve created some kind of passive income to help you bring some money in during retirement. Mostly, though, people retire and use what they have in savings. People are living longer and longer after retiring. The longer you live, the more you have to make that money stretch. Therefore, you might want to think twice about retiring early.

4. Old Age Is Expensive

Not only do you have to make your money last. Not only do you have to consider the problem of inflation. But you have to think really seriously about what life is going to cost you after retirement, particularly as you get older and older. So many costs go up as you age. Your healthcare needs rise. You may begin to need help through in-home care or assisted living.

These costs are not cheap. MSN News reports that an average 65-year old couple requires more than one quarter of a million dollars for healthcare costs alone. A private nursing home costs more than $100,000 per year. When you’re young, you really can’t fully imagine just how expensive it is to get old. Once you’re in retirement those costs can become a very harsh reality.

5. You May Have To Keep On Working

Social security alone isn’t likely to support you. Your own savings and investments might not be enough to cover these costs. Therefore, you may have to keep on working. I personally know many people who retired from their long-term full-time jobs only to have to secure new employment a few years after retirement. Therefore, retirement may simply not be what you expect.

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Want to Become a 401(K) Millionaire? More and More People Are Doing It.

401(K) Millionaire

Becoming a 401(K) millionaire is possible. It’s not necessarily easy. However, more and more people are succeeding.

What is a 401(K) Millionaire?

If you’ve never heard of the time before then you might wonder exactly what it means to be a 401(K) millionaire. It isn’t complicated. In fact, it’s exactly as the name suggests. A 401(K) millionaire is someone who has at least $1 million in their retirement account.

The Number of 401(K) Millionaires Is on the Rise

According to CNBC, the number of 401(K) millionaires increased by 35% in the first quarter of 2019 (as compared to the previous year). The main reason for this is because of the large number of baby boomers who are hitting that seven figure mark. The average 401(K) millionaire is 60 years old.

How to Become a 401(K) Millionaire

If you want to become a 401(K) millionaire then you have to get a grip on your money immediately. The younger you are when you start setting that money aside, the more likely it is you’ll reach that seven figure retirement target. That said, here are some key tips that anyone can use to increase their 401(k) savings.

Max Out Your Contributions

The most important thing that you can do is to contribute as much as you’re allowed to contribute to your 401(k). Your allowed employee contribution amount changes from year to year. In 2019, you can contribute $19,000.

However, if you’re over the age of 50, then you’re allowed to contribute a little bit more so that you can “catch up.” In 2019, you’re allowed to contribute $6000 extra.

Remember that the numbers tend to increase every year so always check what the latest possibilities are.

Moreover, make sure that you’re maximizing employer contributions. Take advantage of any options you have at work for your employer to contribute up to the maximum amount. In 2019, the maximum employer contribution is $37,000. Go talk to HR today.

Make Smart Investments

When investing your money, it’s important to consider your age and how long it will be before you retire. If you’re young, then invest in equity-based mutual funds. They offer higher risk but bigger reward. Hang on through the ups and downs.

However, as you get older and approach retirement age, it’s time to switch to more conservative investments. That’s when you want to put more money into cash and bonds.

One smart option is to invest your 401(k) money into a target-date fund. You set the target retirement date. Then professionals manage your investments for you with that goal in mind. They’ll follow the same rules as above (riskier investments early on and more conservative ones later) so that you don’t have to worry about the details so much.

Don’t Count Yourself Out

You don’t have to be rich in order to become a 401(K) millionaire. Although it’s best if you start young, don’t count yourself out if you’re older. Even if you don’t reach that seven figure target, aiming to do so can help you maximize your retirement income.

Know What You Need to Save To Become a Retired Millionaire

Use a millionaire calculator in order to get a realistic picture of what it would take for you to have $1 million or more at retirement. You’ll enter:

  • Current age
  • Target retirement age
  • Amount currently invested
  • Savings per month
  • Expected rate of return
  • Expected inflation rate

This gives you your expected savings at retirement. However, you can play around with the “savings per month” number until your expected savings reaches $1 million. Then you know how much you need to save to reach that million mark. While this doesn’t specifically determine your 401(k) amount, it gives you a good idea of how much other savings you’ll have to add to your 401(k) to become a millionaire at retirement.

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Gig Economy: Which Generation Is Doing The Gig Work?

gig economy

Recently a news report has been making the rounds about how baby boomers are the generation making the most as workers of the gig economy. However, the report was based entirely on one company’s workers. Therefore, I got curious and wanted to dig deeper into this.

Are Baby Boomers Doing Best in the Gig Economy?

The Mercury News was just one of many sources that shared the news recently that baby boomers are thriving in the gig economy. Based on this report, baby boomers:

  • Took the most gigs
  • Earned the highest ratings from customers
  • Tend to do more of the physical labor jobs rather than admin work
  • Made the most money, out-earning millennials by $200+ monthly

The information comes from Wonolo, a company that gig workers can use to find jobs. The report revealed that workers range in age from 18 – 80+.

Why Baby Boomers May Thrive as Gig Economy Workers

If it’s true that baby boomers are the generation thriving most in the gig economy, then what’s causing that? There could be a any number of reasons.

First of all, if you’re Baby Boomer age and looking for work then perhaps you’re very motivated. Maybe you lost your job recently and find it hard to get new traditional work because of persistent ageism. Or perhaps you’re struggling as you support both your adult children and your elderly parents, so you have to take on extra gigs. Either way, you’re motivated to work a lot and earn as much as possible.

However, there could be more to it than that. Some suggestions in The Mercury News article include:

  • Maturity leads to a stronger work ethic and willingness to put in the effort
  • Experience means that you’re able to do the work effectively and efficiently
  • Baby boomers as a whole may be more reliable workers
  • After working other jobs for years, they find the work particularly enjoyable, so they put in the effort
  • With more experience, they may be able to command higher prices even in the gig economy

Are More Millennials Working in the Gig Economy?

The recent report indicates that Baby Boomers are doing better than other generations in the gig economy. However, that doesn’t necessarily mean that they make up a majority of the side hustle workforce. CBS News reports that nearly half of all working millennials have engaged in gig work for extra income. In contrast, less than 40% of Gen X and barely more than one quarter of Baby Boomers have taken gigs.

Gig Economy Differences Between the Generations

Members of Gen Z, Gen X, Millennials, and Baby Boomers are participate in the gig economy. Therefore, the question might not be who is doing the work but rather what’s the difference between their experiences. Fortune reports on twokey findings:

  • Baby Boomers often take gig jobs for better work-family balance. In contrast, younger generations seek to make more money with gigs as a “second job.”
  • Baby Boomers are most affected by, and worried about, the lack of benefits that come with working in the gig economy.

Deloitte Insights adds some additional information:

  • Millennials in the gig economy often rely on others (such as parents) to help pay some of their expenses. Those who choose the gig economy over a traditional job (instead of in addition to it as a side income) make less than their full-time employed peers.
  • Whereas Baby Boomers tend to get physical gig jobs, millennials often get jobs in admin and the arts. That said, maintenance is also high on the millennial gig list.

It’s also important to recognize that there are many different types of gig work. Some people participate mostly in the sharing economy (driving for Lyft, for example). In contrast, others take contract work in offices or do freelance jobs. The generations may vary in their job choices as well as their reasons for joining the gig economy.

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