Three Sobering Thoughts Hurting Your Retirement

7/27/2021 Marine Bank


The idea of retiring at age 65 with a gold watch and a fully funded retirement account is a quaint notion for many Americans. Amid stagnating real wages, rising inflation and (still) low interest income, most people have a tough time setting aside money for retirement. The truth is there are multiple problems that Americans face while saving for retirement.

While the 401k is still one of the best available retirement saving options for many people, only 32% of Americans are investing in one, according to the U.S. Census Bureau. That is staggering given that 59% of employed Americans have access to one.

And of the ones who do, an even smaller percentage are saving enough to live well in retirement.

Consider these numbers from How America Saves:

AGE

AVERAGE 401K BALANCE

MEDIAN 401K BALANCE

22-25

$5,419

$1,817

25-34

$26,839

$10,402

35-44

$72,578

$26,188

45-54

$135,777

$46,333

55-64

$197,322

$69,097

So, think these balances are sufficient to support your lifestyle when you retire? Considering that the average life expectancy for women is 86.5 years and for men it is 84 years, probably not. You really think that half of those people in the 55-64 age group can live another 20+ years on $3,500 a year?


Sobering Thought #1: Wage Growth

The lack of real long-term wage growth in America over the last decade affects our ability to save for retirement.

It is true that in April 2020 – one of the worst months during the pandemic when the U.S. economy lost 21 million jobs – we saw one of the fastest wage growth periods of all time. You might remember that during that month, the Bureau of Labor Statistics reported that year-over-year growth in average hourly earnings skyrocketed to about 8%. That's the highest observed wage growth rate since the series began in 2006.

But that massive increase was because more lower paid workers lost their jobs while more higher paid workers did not. As such, the “average wage” went up.

Look at it this way: If person A makes $20/hour, person B makes $30/hour and person C makes $40/hour, the “average wage” is $30. But if person A loses their job, then the “average wage” jumps to $35/hour. That's a 16.6% increase.

When changes in data are driven by a shift in underlying characteristics, like more lower paid workers losing their jobs, economists call these “composition effects.”

But let’s not get too geeky. Just look at the wage growth over the past 10 years. Prior to last year’s pandemic, wage growth was stagnating.


Sobering Thought #2: Inflation

Factor inflation into this equation, and the wage growth story collapses even further. And with less real income, there is naturally less left over to save for the future.


Sobering Thought #3: Low Interest Rates

If low wage growth and rising inflation wasn’t bad enough, think about how the Federal Reserve’s “easy money” policy hurts savers.

Just look at the federal funds rate over the past 70+ years (the fed funds rate is the interest rate at which banks lend to other banks and is set by the Fed).

Currently, the fed funds rate is 0.10%.

We used to get a small but significant reward for keeping money in savings accounts, certificates of deposit and government bonds. That’s gone as interest rates are close to zero. Without safe investments like that, many investors flock into riskier asset classes they know little about.


What You Can Do

The key to successful financial planning lies in following wise investment strategies, custom tailored to your personal aspirations. And while your financial plan should be tied to your long–term goals, short– term events need to be addressed too.

Your financial advisor can help you keep your emotions out of your investing decisions, properly account for inflation, and make sure your asset allocation is designed for income, growth or both. More importantly, your financial advisor can help you balance long–term strategies and short–term tactics in order to help ensure that you are accounting for both.

your financial advisor can help you balance long–term strategies and short–term tactics in order to help ensure that you are accounting for both.

That way you can rest comfortably at night knowing that your money is working for you.


With help from our financial advisor, Dallas Lee Whittaker, you can manage your finances and achieve your goals. 


Dallas Lee Whittaker

dwhittaker@ibankmarine.com

(217) 547-1371

I would like to learn more about Marine Bank's Financial Planning program. Please contact me

Dallas Lee Whittaker CMFC, CLU
Senior Vice President

Dallas has over 20 years of experience in all areas of wealth management and financial services. He is passionate about adding value to the lives of his clients through education and addressing their financial goals in a collaborative manner. With a deep knowledge of insurance which is an added benefit when doing financial planning, Dallas is an asset to our clients and the Marine Bank Wealth Management team.

Dallas currently holds a Chartered Mutual Fund Counselor (CMFC) designation awarded through the College for Financial Planning and a Chartered Life Underwriter (CLU) designation through the American College. As Senior Vice President of the Marine Bank Wealth Management Department, Dallas focuses on comprehensive financial planning to help individuals and businesses achieve peace of mind in their financial lives with an emphasis on retirement strategies, legacy planning, and generational wealth management.

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