November 9, 2017

Financial Literacy: Are you prepared for retirement?

By Chris Oerman


With low unemployment rates and all-time stock market highs, Americans have many reasons to feel confident in their personal finances. However, according to a recent survey from Financial Engines, America’s largest independent investment advisor, a majority of Americans lack the basic financial knowledge they need to properly prepare for retirement. A mere 8 percent of respondents were able to pass a quiz about the many financial decisions they will likely encounter during the course of their lifetimes.

Among the more challenging questions:

•   How much life insurance is adequate for my current salary?

•   What is the annual inflation rate for tuition at a four-year university?

•   How long do I need to delay claiming Social Security benefits to receive the maximum lifetime benefits?

•   How much do I need to save to cover out-of-pocket healthcare costs throughout retirement?

The pervasive problem of financial literacy in America is understandable, given the rapid pace of life and the rising costs of living. Additionally, many Americans still remember the stinging pains of the Great Recession that began nearly a decade ago. Millennials were particularly affected by the financial crisis, which took place just as they were coming of age. In fact, a Wells Fargo study revealed that 53 percent of millennials will never be comfortable investing in the stock market. This fear of investing will make it very difficult for this cohort to effectively grow their money, outpace inflation and adequately save for retirement.

While most Americans instinctively understand that preparing for retirement should be a priority, far too few are making real progress toward long-term financial health. How many people can answer (or have saved enough money to address) the following questions?

•   If I lose my salary, how many months can I live off of savings?

•   Once I’m retired, how many years am I prepared for with my expected cost of living?

•   If I suddenly pass away, do I have a plan in place for my family to pay off outstanding debts?

•   How much do I have to start saving to put my children through a four-year university?

If you are between the ages of 50 and 70, there are several major financial milestones you should be aware of and prepared for, including contribution limits and withdrawal requirements for 401(k) and IRA accounts, Social Security eligibility and benefits schedules and Medicare enrollment. Understanding these milestones may mean the difference in your quality of life during your retirement years.

At Western Growers Financial Services, we are in the business of helping you achieve financial literacy. For example, if you do not have access to a company-sponsored 401(k) plan, you can still save for retirement by opening up an IRA, or Individual Retirement Account. With an IRA, you can save up to $5,500 in pre-tax dollars per year. The logic of using pre-tax dollars is based on the assumption that when you withdraw your money at age 59½ or retirement, whichever is later, you will be taxed at a lower rate since you are no longer earning a salary. Thus, your current tax burden is eased, and your money is allowed to grow tax-deferred until withdrawal. Furthermore, once you reach the age of 50, there is an exception that allows for catch-up contributions that raises the maximum to $6,500 per year.

It is no secret: Poor decisions today can cost you later in life. We are here to simplify complex financial decisions and help you achieve your retirement goals. It is never too late to start the financial planning process. Give us a call to learn more about how we can help you along your journey toward a more confident and secure financial future.

Take the Financial Literacy Quiz to test your financial knowledge: