In the past 20 years, the life expectancy of the average American increased about two years, according to the World Health Organization. Getting to hang around for a few more years means more time to travel, bond with family or do whatever it is you want to do. Of course, you’ll need money to check off items on your bucket list, which could be a problem.
A new report from organizations of actuaries in Australia, the U.K. and the U.S. says people tend to underestimate how long they’ll live and don’t understand the risk that poses to their financial stability. Some of the biggest obstacles people face in saving for retirement are getting information on how to save and understanding what’s considered adequate savings for retirement. The researchers say consumers and policymakers alike need to be better educated about financial planning for the population’s increasing longevity.
When today’s 65-year-olds were born in 1950, the average American had a life expectancy of 68.2, according to the Centers for Disease Control and Prevention. As of 2013, it was 78.8 years. Traditionally, Americans think of the retirement age as 65 or close to it, based on when they can start collecting full Social Security retirement benefits, but sticking to that traditional retirement age means you’ll probably need to save a lot more than Americans have in the past. Given the historical increase in life expectancy as time goes on, today’s young workers may need to save for decades of retirement (though, studies have suggested, they may not retire in their 60s, because of increasing student loan debt and changes in money-management styles among young people).
Getting Retirement Ready
There are many calculators that can help you figure out how much you need to save in order to maintain your standard of living after you stop working. To save adequately, your options are to work beyond the traditional retirement age, save more now or some combination of the two. Failing to save enough may put you in a situation where you work longer than you want to, live on less than you planned or go into debt trying to sustain your standard of living.
Not only do you probably want to avoid debt in retirement, but minimizing it in your working years may help you achieve long-term financial stability. Debt costs a lot of money — and if you have bad credit, it will cost you more — and can be difficult to escape. (You can see what shape your credit is in by checking your credit scores for free on Credit.com.)
No matter where you are in life, make it a priority to get out of debt, as well as figure out how much you need to save now in order to reach your future goals. It may be exciting to realize you’re likely to live longer than you think you will, but financial preparation is crucial if you want to enjoy it.
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