In previous issues of the Where What When, we discussed three
common money mistakes. The first is not having a budget, the second is living
above your means, and the third is not having an emergency fund. Let’s look at
two more common money mistakes: needing more retirement funds and not having
enough insurance.
Think about Retirement Now
Most
individuals need to save more money for retirement, which is a significant
concern. Let’s take a look at some numbers to understand the situation better: Based
on the 2019 Survey of Consumer Finances, the most recent available data, the
median retirement savings (i.e., half the group has less than this amount of
savings and half has greater), of each age group are as follows:
·
Under 35: $13,000
·
Ages 35-44: $60,000
·
Ages 45-54: $100,000
·
Ages 55-64: $134,000
·
Ages 65-74: $164,000
Keep in mind
that these figures include only those individuals who have retirement savings.
In reality, many people in all age groups have no retirement savings at all. In
the 2019 survey, only about half of families owned any retirement account.
The takeaway
from these numbers is clear: Most individuals are not adequately prepared for
retirement. A 2023 Fidelity report indicates that 52% of US households will
struggle to cover essential expenses during retirement.
What are some
steps to ensure a more secure retirement?
·
Create a retirement plan:
Determine how much money you’ll need for living expenses after retirement and create
a detailed plan.
·
Start saving early:
The earlier you begin saving for retirement, the better. Even small
contributions can grow significantly over time due to compound interest.
·
Do your research:
Look into different types of retirement accounts, and use online retirement
calculators to help you plan for the future.
·
Consider a 401(k) or
employer-sponsored plan: If your company offers a 401(k) or similar
retirement plan, sign up and contribute as much as possible. These
contributions will be deducted automatically from your paycheck, and you’ll
benefit from tax deferrals and compound interest.
·
Check for employer
contributions: If your company offers a 401(k), determine if they
match your contributions. Aim to contribute enough to get the total employer
contribution, if available.
·
Explore pension plans:
Though rare nowadays, some employers might still offer traditional pension
plans. If available, learn how they work and keep track of your pension
benefits.
·
Understand job changes and
retirement benefits: If you change jobs before retirement, find out
what will happen to your retirement benefits and how you can carry them
forward.
·
Advocate for a retirement plan:
If your current employer doesn’t offer one, consider asking him or her to start
one. Some states may require employers with a certain number of employees to
have a retirement plan.
·
Know your Social Security
benefits: Social Security can provide financial support during
retirement, but it’s not meant to be the sole income source. Understand how it works,
and consider it alongside other retirement accounts, pensions, savings, and
investments.
·
Start saving, no matter how
small: Even if it’s just $100 a month, any amount you can save for
retirement will be beneficial in the long run.
Make Sure You’re Insured
Insufficient
insurance or coverage is another common mistake that can seriously affect your
financial well-being. Think of insurance as a specialized emergency fund
designed to protect you from specific emergencies. To safeguard your financial
health, it’s crucial to have the following types of insurance:
·
Health insurance:
Many people declare bankruptcy because they face unexpected medical expenses
without health insurance. While health insurance might seem like an added
expense, the potential cost of not having coverage is far higher and riskier.
·
Homeowner’s insurance:
Protecting your home and valuables is vital. Homeowners insurance safeguards
you in case of theft or damage to your property, preventing you from facing a
devastating financial burden.
·
Auto insurance: In
many states, having auto insurance is legally required. Various types of
coverage exist, such as comprehensive, personal injury protection, collision,
uninsured motorist, and liability. Some policies even cover legal defense costs
if you end up in court after an accident.
·
Life insurance: Life
insurance becomes a priority if your family depends on your income. It provides
financial support to your loved ones in case of your untimely passing. Consider
whether to buy insurance not only for the main breadwinner but also for his or
her spouse (to help with the costs of childcare and household help). Check if
your employer offers life insurance benefits; if not, numerous insurance
companies provide life insurance policies.
·
Other types of insurance:
You may want to buy insurance for disability, business, accidental death and
dismemberment, and/or long-term care. Some of these types may be necessary for
your specific situation, and some may not. If they are beneficial to you and
your situation, check into these types of policies.
A Recap
Remember these
five common money mistakes to avoid:
·
No financial plan in place.
·
Living above your means.
·
No emergency fund.
·
Insufficient retirement
fund.
·
Inadequate or no insurance
protection.
Take control of
your finances today. Create a financial plan, cut unnecessary expenses, save
for emergencies and retirement, and ensure you have the right insurance
coverage for your peace of mind. By taking these steps, you can protect
yourself and your loved ones from financial hardship in times of crisis.
Rivka Resnik has developed the
Living Smarter Personal Finance curriculum for both Jewish junior high and high
school students, which is being used across the country.
