US retirement system has big flaws, experts say. Four ways retirees can protect savings

The United States retirement system has some major shortcomings, especially compared with other developed nations, experts say.

According to the 2022 Mercer CFA Institute Global Pension Index, which ranks retirement systems in 43 nations, the United States ranks 19th with an index value of 61.4. Similarly, the Natixis Investment Managers 2022 Global Retirement Index ranks the United States 18th with a score of 69%.

Experts say among the United States’ system’s biggest flaws is its inaccessibility to workplace retiring plans, such as pensions and 401 (k)s, according to CNBC’s reporting.

About 57 million Americans did not have access to a workplace retirement plan in 2020, CNBC reported, citing a report by the Center for Retirement Initiatives

“Some people do very, very well but a lot of other people are left behind,” said Angela Antonelli, executive director of the Center for Retirement Initiatives at Georgetown University.

“Access is our No. 1 issue,” Will Hansen, chief government affairs officer at the American Retirement Association, a trade group, said. Noting that “the retirement system is actually a good system for those who have access.”

To make matters worse, the system is facing unusual additional pressures from inflation, changing demographics and fluctuating interest rates.

In its annual report, Natixis says “2022 could be one of the worst years to retire in recent memory.”

Here are four ways you can prepare for retirement and protect your savings, according to experts.

Start saving as early as possible

One of the most common pieces of retirement advice: start saving early.

The sooner you start saving, the more time your investment has to grow, the United States Department of Labor says. While its never too late to start saving, its better to start as early as you can.

Edward Jones advisors suggest thinking in terms of time, money and return when it comes to retirement saving.

“You control time and money. And while you may think you have little control over the return, you actually control more than you think. You control the “how,” or how you have your money invested. That’s because how much you have in cash or fixed income versus growth investments can greatly affect your return potential,” an Edward Jones blog post says.

For example, assuming you save 5% a year, if you start putting $5,000 into an IRA when you are 30, you will have about $669,400 by the time you are 70. On the other hand, if you started saving at age 50, you would only have about $186,860 when you are 70, according to AARP.

Have a goal

It’s important to have a goal for your retirement savings to ensure you are prepared to live comfortably for years after you retire.

You should prepare to have 70% to 90% of your preretirement income to maintain the same standard of living when you stop working, according to the Department of Labor. AARP suggests saving around 10 times what your income is at the time of your retirement.

Planning how many years you will rely on your savings is important, too. Underestimating how long you will live after retirement is the second biggest retirement planning mistake, according to Natixis.

If you retire at 65, you should estimate that you will live at least another 21 years, AARP says, suggesting that retirees should play it safe and assume they will live until at least 90 years old. It’s always better to over prepare when it comes to retirement.

Account for inflation

The biggest mistake that investors made when planning for retirement in 2022 was underestimating inflation, Natixis says.

Indeed, inflation is not easy to predict, and before 2020, it has remained low. Going forward, retirees should be prepared to field blows from the economy like we have seen over the past several months.

And while Social Security benefits adjust to inflationary pressures, it’s still important to consider inflation.

Kiplinger suggests that when establishing a retirement plan, you should account for inflation by selecting a long-term assumed inflation rate. By building your savings with this rate in mind, you can effectively create a cushion for any real inflation growth.

Understand Social Security benefits

Social Security payments are a huge public benefit available to retirees. But it’s important to understand just how much these payments benefit and support retirees.

“Relying too much on public benefits” ranks eighth among the 10 most common retirement planning mistakes, according to Natixis.

In the United States, Social Security is set to run out of funding by 2034, according to The Trustees of the Social Security and Medicare trust funds’ 2022 annual report. After that, the fund will only be able to pay 77% of scheduled benefits.

The impending insolvency is being exacerbated by inflation adjustments and an aging population, according to experts.

Another important decision is when to start receiving your Social Security benefits.

Beneficiaries can receive their benefits as early as 62, but they also have the option to wait until “full retirement age,” which is determined by birth year, or delay even further until 70, which increases benefits, according to the Social Security Administration.

Depending on your full retirement age, taking benefits early could cost between 25% to 30% of a beneficiaries overall retirement benefit, the SSA says.

There are advantages and disadvantages to each choice, but Charles Schwab suggests that retirees consider their cash needs, life expectancy and marital status when making a decision. You should consider opting for early benefits if you are not working and need your benefits to make ends meet or your spouse is higher-earning and can wait to file for higher benefits, according to Charles Schwab.

However, if you are in good health and can wait, or if you’re still working, you should consider putting off benefits until you turn 70, which allows you to earn more each year.

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