Tips for Avoiding Future Money Problems
Money Problems Were Different Back in the Day; Barry Bigelow with Great Waters Financial Offers Tips to Staying Financially Alert
DULUTH, Minn. – Planning for retirement used to be fairly predictable.
As decades pass, times have changed and we’re now facing money problems today that didn’t exist years ago.
Financial professional Barry Bigelow with Great Waters Financial stopped by FOX 21 Local News Wednesday morning to share a few key tips when it comes to staying up-to-date financially.
Q: What is different today when it comes to saving for retirement?
THEN: RETIREMENT MONEY WAS GUARANTEED
• Social Security and pensions provided most of a retiree’s income decades ago, and their biggest concern was whether to play golf or tennis!
• In the 1980s, Social Security provided 65% of a retiree’s income.
• Today, Social Security accounts for about 40% of income for middle-class retirees who claim their benefits at age 67.
• Pension plans used to fill the gaps: Nearly half of all private-sector workers were covered by a pension plan in 1980. Today, that number is less than 20%.
NOW: CREATE YOUR OWN RETIREMENT SAVINGS PLAN
• People planning for retirement today need to take money matters into their own hands by saving in an employer-sponsored 401(k) or an IRA.
• I recommend putting 10 – 15% of every paycheck into your 401(k).
• Also, consider opening an IRA or Roth IRA to save outside of your employer’s plan.
• If you can, max out both savings vehicles. You can contribute up to $18,500 in a 401(k) this year, and an additional $5,500 in an IRA.
Q: How has healthcare changed over the past few decades?
THEN: HEALTHCARE WAS CHEAPER
• Over the past five decades, healthcare costs have risen faster than the average annual income.
• In the year 1960, the average cost of healthcare per person was $146. In 2016, the average cost was more than $10,000 per person.
• People are also living longer in retirement and are expected to spend more on healthcare as they age.
• An average couple retiring this year can expect to spend $280,000 on healthcare expenses throughout their retirement. That price tag doesn’t even include the cost of long-term care!
NOW: PLAN FOR HEALTHCARE COSTS IN RETIREMENT
• Consider saving money in an HSA. A health savings account is a tax-advantaged savings vehicle that can be used at any age to pay for qualifying healthcare expenses.
• HSAs will fund your current healthcare costs, like contact lenses or a trip to the dentist, and the balance of your HSA will carry over each year and can be invested to grow for the future.
• HSAs are a great retirement savings tool because you can withdraw the money tax-free for qualifying medical expenses. These accounts also do not have required minimum distributions so the money can keep growing until you need it.
• I have more information about which medical expenses are covered by your HSA on my website, greatwatersfinancial.com
Q: How has debt become a bigger problem today than in the past?
THEN: BUDGETING WAS STANDARD
• Credit cards haven’t been around forever. Before their rise in popularity in the 1970s, people put pen to paper to write down each and every expense.
• This also meant people had less debt. The average debt per person in the 1960s was less than $4,000.
• Today, the average American has $135,000 in debt – including credit cards, mortgages, car loans and student loans.
NOW: PEOPLE NEED TO DEAL WITH DEBT
• Tackle your credit card debt using the snowball method. Start by concentrating on your smallest debt first, while still making minimum payments on the rest.
• Once the smallest debt is paid off, take the payment you were making on that debt and put it toward your next smallest debt. Like a snowball rolling down a hill, you will gain momentum with each payment to eliminate your debt completely.
• Once you’ve paid off your debt, consider sticking to cash for your day-to-day purchases to keep your budget on track.
Q: How do these changes affect baby boomers who are entering retirement now?
• There are still many unknowns for baby boomers who are retiring in the next few years. Social Security benefits, for example, could be reduced by 21% in the next 16 years if Congress doesn’t find a solution. And the costs of healthcare and long-term care continue to rise.
• There is no doubt baby boomers are facing money challenges that didn’t exist for their parents or grandparents.
• It is never too early to sit down with a financial professional and take a holistic view on your financial future – look at everything from retirement savings needs to Social Security strategies and tax efficiency.