Why Demographics Are Putting Your Pensions in Serious Trouble and the 5 Steps You Should Take Now

There is a certain relief that comes with knowing that when you retire, you’ll get a set amount of money every month for the rest of your life. But what happens if the expected benefits are not guaranteed or forthcoming? Many people may not realize that demographic changes taking place in the US will significantly affect the US Social Security System. America’s pension shortage resulting from underfunded or entirely unfunded public pensions is imminent, and the pension system might face financial challenges in the future.

The rise in life expectancy is indeed a positive factor in that our people can live longer and probably enjoy life. This will require adjustments for them to enjoy comfortable lives in the twilight of their lives. It is interesting to note that the total population of retirees is slowly but surely increasing while the working-age population is growing smaller. As a result, the pension systems are experiencing a declining worker to beneficiary ratio, and we don’t expect that to reverse any time soon. The rising expectancy, coupled with falling fertility, is a sure recipe for financial difficulties in the pension systems. This creates a situation where relatively few workers will need to support a growing retired mass.

Here is the deal, Americans are living longer and having fewer children. The elderly population has increased with time, and this number might grow in the future. If you observe carefully, it is evident that unlike fertility trends, which might exhibit large swings over particular periods, life expectancy shows a steady increase. The projections indicate that in just over a hundred years, this population will have doubled as a percentage of the total population while the working-age population will have shrank. These two factors on the US population lead to a subsequent strain on the Social Security System.

Immigration is also a factor when it comes to the age structure of the population. Comparatively, the general net migration has typically increased in recent years. Usually, immigrants tend to be younger and have higher fertility rates than the general population, so the current situation could be worse since the immigrants mitigate the aging of the population.

As people live longer, it is possible to run out of money. You need to expand on your savings options and invest money beyond your pension. This expansion helps you save more so that your retirement savings can keep you going. What you need to realize is that Social Security is not the end-be-all-for retirement. Adding other accounts to your retirement plans like IRAs and annuities can offer benefits like guaranteed income.

Experts agree that to retire comfortably, you’ll want to set aside 10-15 percent of your pretax income, though everyone’s situation might be different. If you’ve managed to set aside a portion of your income, the following are accounts you can use to stash your money.

Fund A 401(K)

The 401(k) is a simple way to start saving for retirement because of the substantial tax advantages. You contribute before tax, and so the more you contribute, the more you reduce your taxable income. Additionally, companies automatically take the money from your paycheck before you can spend. Some companies will offer a match where, for instance, if you contribute 3% of your salary into your account, your employer puts that same money in your account, doubling your contribution. If your employer offers this kind of benefit, you should take advantage to save some cash. One key disadvantage of a 401k plan, however, is that you may be required to pay the penalty for accessing the cash in case of an emergency need.

Fund a Traditional IRA

If your company doesn’t offer a 401k plan, you can choose to save your money in an IRA. These plans will give you a tax break, just like the 401k. What happens is that the money you contribute will grow tax-deferred over time, and you’ll pay your taxes on your contributions and investment gains only when you withdraw cash, which you can do when you get to age 59½. Withdrawing before that time leads to a penalty.

Fund a Health Savings Account (HSA)

Health savings might not be specifically for retirement, but they can be a valuable savings tool for retirement. Depending on your specific situation, some financial planners might advise maximizing your health contribution before the 401 k plan. With this plan, you can put pretax money towards medical costs, which you can use any time you wish. Something impressive about this arrangement is that any unused funds will roll over to the next year. This contribution can be an excellent addition to your regular savings.

Generate Income

Apart from your savings, several plausible income options could generate a decent income for you. For instance, you can invest in infrastructure and property funds, which provides you an exposure to real assets while generating revenue for you. Other alternative investments could include gold, silver, diamonds, and art. Metals are particularly attractive if you seek long term gains, and if you can safely store assets for years. If you plan to specialize in paintings, for instance, you need an eye for art and the ability to speculate for its future value.

Save Your Pension by Keeping Some Emergency Funds

It is a good idea to set aside up to two years of living expenses in cash. If you have some money which you can easily access in an emergency will protect from the need to sell off your assets at a loss for quick money. Your emergency fund will cover for a period where you might be falling short of your income generation target.

Final Word

Social security doesn’t provide enough money for a comfortable retirement. The demographic factors like low birth rates and longer life expectancy for the older population are making this situation worse. That’s why it’s crucial to put in place investments that can provide you additional resources in your golden years. To learn more about how to protect your pension, click here!

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