Most credit union members look to their financial institution for helpful advice on money management. It’s up to you to make best practices readily available and known to your member base.
While the advice your members might initially seek pertains to things like investing information or budgeting strategies, don’t leave out the biggest expense they’ll encounter in life: retirement.
For most working Americans, retirement might seem like a far-off goal. According to the Pew Research Center, just over one-third of the labor force are millennials, with the oldest people in this group approaching their mid-thirties. This means that, for many of today’s workers, retirement is still three or more decades away.
Though three decades seems like a decent amount of time to save for retirement, many people reach their golden years financially unprepared. Fortunately for your members, they have a resource that can help them plan for their post-career years adequately, so they can retire happily and free of financial stress. That resource, of course, is you – their credit union.
Help your members out by clueing them into these oft-overlooked facts about retirement:
Retirement is more expensive you might think
The average cost of retirement is $738,400, according to a study conducted by Merrill Lynch and Age Wave. For comparison, researchers found that the next-biggest life purchase was a home, with an average cost of $278,300.
If retirement costs upward of $700,000, the best case scenario for 60-somethings to have close to this much saved. However, this is often not the case, according to a study from the Transamerica Center for Retirement Studies. About 80 percent of survey participants age 60 or older have less than $250,000 saved for retirement.
The younger the demographic, the less people have saved. About half of 50-something respondents said they have less than $250,000 saved, and nearly 60 percent of 40-something respondents said the same.
Many people look forward to receiving Social Security checks to help them out with expenses. But far too many people rely on this as their sole means of income, according to SmartAsset. With an average monthly payment of less than $1,500, this isn’t enough to sustain the typical American’s living expenses.
Retirement savings need to last longer than ever before
Merrill Lynch’s study pointed out the increasing gap between average retirement date and life expectancy is growing. The typical person born in 1965 has a life expectancy of about 70 years, but an average retirement age of 65. This means their retirement savings needs to last about five years.
Someone born four decades later in 2005 has a life expectancy of about 77 years, but an average retirement age of about 64. These people will need to stretch their retirement savings for 13 years.
The longer retirement savings need to last, the harder it can be to budget. Help your members out by explaining what the typical spending timeline looks like for retirees.
Health care costs go up with age
Health deteriorates as people age – that’s an indisputable fact of life. Most people know that, once they turn 65, they can enroll in Medicare, and that this will help with health care costs in retirement. While this is true, your members are likely unaware of what Medicare will actually cover, and what they’ll be stuck paying for out of pocket.
One increasingly more common expense that is largely not covered by Medicare is long-term care, Fidelity Investments pointed out.
“Unfortunately, recent Fidelity research on family finances has shown that less than half of parents surveyed have not had detailed conversations about long-term care with their kids,” explained Adam Stavisky, senior vice president at Fidelity Benefits Consulting. “Planning on how to address these potential costs will help avoid placing the burden of care on family and friends.”
Fidelity suggests that retirees aim to have $130,000 set aside specifically for long-term care costs, in addition to their regular retirement savings.
Aside from long-term care, there will likely be many medical expenses that arise in retirement. The typical retiree in 2016 will require about $260,000 in savings for their medical expenses, Fidelity explained.
Spending retirement savings can be emotionally difficult
Saving for retirement is an accomplishment anyone should be proud of. Building a nest egg and living financially responsibly isn’t always easy, and it requires long-term planning and goals. With this in mind, many people find it difficult to finally begin withdrawing from their savings, U.S. News & World Report explained.
“They are going to feel like they spent a lifetime accumulating this pile, and the idea of spending this down is just repulsive to them,” Alicia Munnell, director of the Center for Retirement Research at Boston College, said, according to U.S. News & World Report. “For anyone who is retiring, I would give them permission to spend their money.”
If a retiree doesn’t need to withdraw from his or her savings, that person might choose to leave it be. This is fine for a period of time. That period ends on their 70th half-birthday. Six months after their 70th birthdays, retirees are required to make their first withdrawal from their traditional IRAs or 401(k)s, according to Kiplinger. If they don’t, they’ll be subject to a penalty of 50 percent the amount they were required to withdraw.
If your members reach the age they need to withdraw, but aren’t emotionally prepared or don’t yet have a need, remind that that just because they take the money out, doesn’t mean they have to spend it. Once the funds are out of their IRA or 401(k), they are free to reinvest them however they choose.