- Unexpected life events can take a toll on your retirement savings, according to new research from Goldman Sachs.
- Top financial advisors say consistently living below your means can help you make up for the shortfall.
Life goals and other financial priorities can get in the way of saving for retirement.
Over the long term, it has been reported that these competing priorities, known as the “financial vortex,” could reduce retirement savings by up to 37% for American workers. New research findings from Goldman Sachs Asset Management.
According to a July survey of 5,261 Americans, 65% of U.S. workers said they were confident in their ability to meet their retirement savings goals, up from 57% last year. Even though they are there.
But even for the most diligent savers, life events can disrupt retirement preparation.
According to a study by Goldman Sachs, if you have to retire earlier than expected at age 62, your total retirement savings could drop by 25%.
Meanwhile, student loans can reduce your total retirement savings by 19%. Nursing care could leave him 18% short. Early career cash outs were down 16%. The increase in salary was not matched by a proportionate increase in retirement savings, resulting in a 13% decrease. Due to financial difficulties he has decreased by 5%.
Chris Cedar, senior retirement strategist at Goldman Sachs, said it’s “easy to imagine” that for savers who experience multiple of these events and factors, their retirement savings could decline by 37%. said in a presentation on recent research.
“The reality for people saving for retirement is that now more than ever, we need to figure out how to balance these real-life impacts,” Cedar said.
The model predicted a continuous 3% adjustment as salary increases and seven growth events over the course of a career. This includes 10% early career raises and 6% late career raises.
The potential for shortfalls even with these increases shows that all workers face the challenge of funding their lives today while also saving assets for retirement.
“Between living better now and living better in the future,” says John Merrill, president and founder of Tanglewood Total Wealth Management (Houston), ranked No. 58 on this year’s CNBC FA 100 list. There’s a balance,” he said.
Events like divorce, which Merrill calls “economic sabotage,” may occur unexpectedly, but even planned life milestones like the birth of a child can increase financial pressure. There is.
“The key is discipline,” Merrill said. “People who are disciplined with their money and disciplined with their lives will really go further.”
The best approach is to pay yourself first, putting at least 10% of your paycheck into retirement and 5% into an emergency fund, then spend the rest, he said.
Other experts warn that you should avoid increasing your overall spending as your salary or assets increase, known as lifestyle creep.
According to Stephen Kohn, a certified financial planner and co-president of Sage Financial Group in West Conshohocken, Pa., which is No. 22 on the CNBC FA 100 list, having a high-cost lifestyle poses two problems. Masu.
First, it makes it harder to save for long-term goals, including retirement. And in retirement, savers may find their savings fall short of their needs, having difficulty supplementing the income needed to maintain their lifestyle.
Some people may hold back on increasing their savings for retirement in favor of other short-term goals.
“Some people say, ‘It’s more important to me to put my kids through college than it is to retire at 65,'” Cohn said.
However, research from Goldman Sachs shows that many savers lack control over when they retire.
According to the company, nearly a quarter (21%) of respondents said they would delay retirement for more than four years because of the financial pressures they face, including credit card debt, saving for college and supporting their families. I answered that I don’t think so. .
However, according to Goldman Sachs, 50% of retirees left their jobs sooner than expected.
Patrick McGinn, president of Retirement Resource Investment Corporation in Peabody, Mass., ranked 29th on CNBC, says some people reach age 60 and are exhausted and want to retire, but unfortunately, that doesn’t happen. He pointed out that some people don’t have enough savings to do so. FA100 list.
If you claim early, you may face a reduction in your Social Security benefits. They also need to figure out how to cover health insurance from age 62 to age 65, when they become eligible for Medicare, McGinn said.
“When you put these things together, that calculation becomes very difficult,” McGinn said.
The best way to prepare is to focus on what you can control and try to find balance in your current lifestyle, he said.
“If you try to live below your means pretty consistently, you should generally have a pretty good success rate,” McGinn says.