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Editor’s Note: This story originally appeared on NewRetirement.
Inflation, interest rates, the war in Ukraine, energy prices, deficits, taxes, insurance costs, bear markets, recession, housing crash, housing crisis, income inequality, weak global economy, and the list of economic crises goes on.
Ignore your competing priorities of children, housing, savings and aging parents.
But, what are the real threats to your financial security? And, more importantly, what exactly can you control or do about the economic issues that concern you the most?
Goldman Sachs’ Retirement Readiness and Insights Report 2022 outlines the difficulties that most concern those approaching retirement and those who are already retirees.
Here are some of the biggest threats to financial security, and how you can protect your money.
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The number of people troubled by inflation has increased from 42 percent in 2021 to 71 percent today.
Rising costs actually put a real damper on your financial security. As such, you want to ensure you have as much inflation-protected income as possible for your retirement. In fact, trying to cover 100% of your mandatory fixed expenses with inflation-protected income is a good goal.
Social Security, some pensions and some annuities are inflation-protected. And if the rate of return on your investment is higher than the inflation rate, your withdrawals can also be considered inflation-protected.
Use the New Retirement Planner to assess your inflation-protected income sources. The Lifetime Income Estimation Chart enables you to view your various sources of income. You can also use the detailed budgeter (Expenditure > Recurring Expenses > Planner + Budgeter) to define your essential and flexible spending needs, then use two separate budgets to estimate your plan at different spending levels. You can toggle between
The top way most households deal with inflation is by reducing or controlling spending. With the job market still strong, working longer hours or finding a retirement job could become a big trend.
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According to the most meaningful metrics, the goal is to live a long life. However, a longer life requires more money and better planning.
Use the New Retirement Planner to gauge your chances of success and age out of money on various longevity goals. We generally recommend that you plan for at least 10 years to act as your expected longevity and margin of accidental error.
Try out one of the 10 Best Life Expectancy Calculators and plan for a long life of financial security.
Lack of funds: long term income risk
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Even if you’re already retired, you can probably hit record highs in the short term with inflation, but the real question is: Will you run out of money in the future?
The New Retirement Planner can help you answer this question. You can find out your “likelihood of success” score or evaluate your out-of-money age. And, you can explore these metrics using the worst-case and best-case scenarios separately.
Develop contingency plans like spending less, shrinking your housing, or getting a retirement job for your worst-case scenario.
Financial Vortex and Risks of Savings Rates
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The Goldman Sachs report refers to the myriad financial preferences, life events and planning assumptions that affect a working person’s ability to contribute to their retirement savings, often in the form of a “financial vortex.” Starting in mid-life, financial pressure mounts as people meet very real spending needs. And, the study finds, these competing financial needs put retirement savings at risk.
However, most experts recommend that families prioritize retirement savings over other competing priorities. Your child can get student loans and your aging parent can opt for Medicaid, but no one else will fund your retirement.
Evaluate what feels right to you and see what you can actually afford.
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It is generally suggested that 70% of your pre-retirement income is required to maintain your standard of living in retirement. But a Goldman Sachs survey found that only 25% reach retirement and have at least 70% pre-retirement income and more than half (51%) receive less than 50% of their pre-retirement income. Is.
Statistics show that most retirees are living below the lifestyle they enjoyed during their working years.
The Lifetime Income Projection Chart in New Retirement Planner can help you visualize your income and desired expenses over your lifetime. It’s a good idea to look at this chart with different best-case and worst-case scenarios. How to see your expenses and income:
Continuing high inflation levels? Low investment return? High and low levels of spending? Health risks and concerns about long-term and medical care costs
According to the Fidelity Retirees Health Care Cost Estimate, in 2022 an average retired couple age 65 may need to save about $315,000 (after tax) to cover health care expenses in retirement.
These are out-of-pocket expenses that are not covered by Medicare and do not include the potential cost of long-term care.
Death of a Spouse: It’s Not Only Your Financial Security at Risk
A Goldman Sachs study shows that very few people are really concerned about how they will fare after their spouse leaves. And, earlier research has found that most married couples plan retirement on their own, without consulting their partner.
It is a mistake. Families require their income for all concerned. NewRetirement Planner is one of the few online tools that is fully responsible for all aspects of the current and financial picture of the spouse.
Viability of Social Security and other government retirement benefits
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Nearly half of those surveyed by Goldman Sachs are concerned that there will be cuts to Social Security benefits in the future.
While it’s highly unlikely that the government will reduce benefits to anyone already receiving them or be ready to start rolling them out soon, both Social and Medicare are in financial trouble. And, there is talk in Washington, D.C., of possibly raising the starting age for benefits, reducing benefits for people earning certain amounts, or otherwise addressing the fact that these programs will go bankrupt.
It may be important for young workers to take on even more responsibility for their future financial security by saving more.
Focus on what you can control
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As with any stressful situation, it is important for you to focus on what you can control. You can’t change the global economy, but you can determine what you spend and, to some extent, what you earn and save.
Reducing expenses and working longer or getting a retirement job are activities many families are now considering. These are relatively simple and highly effective strategies to overcome economic difficulties.
Optimizing your savings, investments, taxes and insurance are more sophisticated and viable strategies for improving your financial security.