April is Financial Literacy Month. This has been designated as a time to learn new ways to improve your financial knowledge. We try to help in this regard every week in this column. There will be a lot more written in general publications this month about financial literacy. Generally, people are not as prepared as they should be for every possible financial situation. A few weeks ago we discussed emergency money and the use of credit cards. Today, we will be looking at retirement.

For many years, planners talked about the three legged stool of retirement planning. These were pensions, Social Security and private savings. A three legged stool is very stable. All of the legs will sit on the floor even if there is some different in length of them. Unfortunately, many people’s retirement stool is not as stable.

Today, many baby boomers will not receive a pension. This is a much different situation than our parents. The median pension according to the Pension Rights Center is only $9,376 per year. State, federal and local pensions were higher. Pensions guaranteed a lifetime income to you and your spouse that you could not outlive. Many boomers will not receive a pension and are dependent on 401(k) plans. These plans do not guarantee a lifetime income. If you spend too much or the stock market experiences a correction you could be wiped out.

According to Vanguard, the median balance 401(k) for all age groups is only $58,035. Since many Americans are expected to live into their 80s, this would provide about $3,000 per year in income. This is not very much.

The average Social Security check in 2018 was $1,422 per month or $17,064 per year. We discuss several times every year how to increase this important benefit. When you combine all of these sources of money together, the average person has a little over $29,000 per year. Remember, most people spend more on medical care as they get older. Hopefully you have paid off your mortgage and other debts by the time you retire. Most people need to try and find a way to save more. It can be done, but it does require some sacrifice.

The number one fear of seniors in survey after survey is the fear of running out of money during retirement. Being solely dependent on market returns would not be alleviating this concern, if a big loss happened right before or early in retirement.

This is known as sequential risk.

Congress is very concerned about this low savings environment in America. It will lower many people’s standard of living and stress government benefit programs. Because of this, in a rare bi-partisan vote in Washington, a house committee voted unanimously on a bill to help the retirement income crisis. If passed and signed into law, this bill would encourage small business to offer retirement savings plan to their employees. There might be automatic enrollment into the plans instead of opting into a plan like we do today. Auto enrollment averages about a 10% higher participation rate. They are discussing raising the age to start required minimum distributions and other things to encourage more retirement savings. A Senate committee is introducing a similar bill.

There is a financial crisis for many American’s today. Make the changes in your life to better your family’s future. You can do it.

Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, “Your Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.” If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.

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