3 facts you need to know to prepare for retirement

Many Americans are far from a golden retirement in the new decade.

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  • Social Security benefits could reduce significantly over the next 10 years.
  • Average 401(k) balance is nowhere close to retirement health cost projections.
  • Financial illiteracy and money mismanagement cost Americans over $350 billion in 2021.

Social Security Benefits Could Reduce Significantly Over the Next 10 Years

A 2020 Transamerica Retirement report stated that most retirees treat Social Security benefits as their primary source of income. In their latest report, the Social Security Administration stated that the maximum monthly benefit for someone retiring at full retirement age is $3,345, whereas the expected average benefit in January 2022 is $1,657 (after 5.9 percent of cost-of-living adjustment). This could mean that many people claim benefits when they become eligible at the age of 62, and get locked into lower monthly income for life. 

As people in the age group of 65 and above are estimated to increase by tens of millions by 2030, the benefits paid out by the Social Security fund may end up being more than the revenue collected from payroll taxes. To prevent the nearly $3 trillion fund from running dry, benefits could be reduced by 21 percent or taxes could hike up. As such, relying solely on Social Security benefits in your retirement may not be the best way to go.

Average 401(k) Balance is Nowhere Close to Retirement Health Cost Projections 

Investopedia reported that the average healthcare cost of a 65-year couple retiring in 2021 could be $300,000. In stark contrast, the average 401(k) balance stood at $129,300 according to Fidelity Investments. Although the average balance increased significantly compared to 2020, it is still a far cry from being able to cover healthcare and long-term care expenses in retirement. 

After reaching 65 years of age, Medicare may cover your doctor checkups, medicine, medical equipment, and physical therapy; but they will only cover a part of the expenses for staying in nursing facilities for up to 100 days. The Administration of Community Living mentioned that 20 percent of those retiring in 2021 might require long-term care for more than five years, whereas 70 percent would require care assistance at some point in their lives. 

What is more worrying is that the national median yearly cost for a private room in a nursing home touched a whopping $105,850 in 2020 compared to $65,185 in 2004, as per Genworth’s Cost of Care Trends and Insights report.

Financial Illiteracy and Emotional Money Moves Cost Americans an Estimated $352 Billion in 2021 

A National Financial Educators Council 2021 report estimated that 254 million adult Americans lost a whopping $352 billion due to financial illiteracy and the mismanagement of personal finances. This is because many people attach emotions to money and act too quickly when they see their assets tank.

One simple yet effective solution to this problem would be to team up with an in-house financial advisor who has the experience and intuition needed to tackle unprecedented market recessions and pitfalls.

A fiduciary financial advisor is legally and ethically bound to make the best possible investment decisions for you while preventing your emotions from playing a part in portfolio management. They work to understand your financial aspirations, fears, and current financial situation in order to help you with your taxes, investments, and income flow. 

SmartAsset is changing the way investors connect with vetted financial advisors. They help over 45 million people manage their personal finances every month. Their proprietary client-advisor matching services connect you with up to three vetted fiduciary financial advisors that might be a good fit for you in the long run.

After answering their online advisor match quiz, SmartAsset’s concierge team will narrow down their available options to fiduciary advisors who might actually be able to help you. You may then interview them as you see fit before teaming up with one.

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