4 ways to establish financial stability for the future

This article was written for our sponsor, AARP North Carolina

The financial weather is forecast to be rainy soon for older Americans, and many have saved little to buy umbrellas.

The average American has about $168,000 saved for retirement, with baby boomers holding a bit more than $400,000 and Gen Xers almost $185,000, according to ConsumerAffairs. With the average couple spending about $76,000 in a year, according to the Bureau of Labor Statistics, it appears that few are prepared for more than a few years of retirement.

"We have in this country more of a spending culture rather than a saving culture," said David Certner, legislative counsel and policy director in AARP's government affairs office.

The fundamental solution is to encourage more people to get in a savings mindset, but that can be difficult when there are so many messages encouraging spending. It’s especially difficult in an economy with inflation around 7%.

Not only are many people having a difficult time saving money in retirement accounts, but they’re taking money out of those accounts to pay for living expenses, said Sen. Bobby Hanig of the North Carolina Senate. That does not bode well for the future.

"It will be a crisis of epic proportions," he said. "It’s going to cost us more if we don’t do something about it now."

People may also not be able to count on the federal government for Social Security in the future, said Hanig.

"I don’t think I’m being extraordinary when I say 20 years from now, this is going to be one of the largest financial situations we’ve faced," he said.

However, there are ways workers can save more for their later years. Here are four ideas.

Start early

Workers in their teens or 20s should get into the habit of setting aside funds for retirement immediately when they get paid. Even small amounts at this stage of life can accrue to substantial savings several decades later.

"It’s much harder if you don’t do anything until you’re much closer to retirement," said Certner. "We really want people to start early."

Work longer

Those who were planning to retire in their early 60s may find they’re not financially ready, and continuing at their jobs will bring a double benefit, said Certner.

"When you work longer, that’s one more year of income coming in," he said. "It’s one more year of being able to save money through an employer pension plan, and your Social Security benefits are going up. You’re increasing your savings, but it’s [also] one less year you’re taking savings out. Anybody who’s looking at retirement savings, it’s one way of improving what’s going in and limiting what’s coming out on the other side."

Understand your investments and fees

Many people don’t know how they should invest their money nor the kinds of fees they will pay for various services or investments, said Certner.

"Those fees can substantially eat away at their savings," he said. "If you’re talking about a fee that is 1% as opposed to half a percent of your money, over your work life, that small half a point difference is going to make a 15% difference in what the final accumulation is. It’s important to be mindful not only of how your money is being invested but what kinds of fees you’re paying for it."

Support local legislation for paycheck deductions

In North Carolina’s assembly, Hanig sponsored a small-business retirement bill that would help residents who work for smaller companies without retirement plans. According to Vanguard, those with access to payroll deductions for retirement savings are 20 times more likely to save.

"It’s an important bill because it doesn’t go after the folks that are putting money into a 401(k)," he said. "This is for the guy who can afford to put $15, $20 a week into this program, so he starts to build something."

Regular paycheck deductions are one of the simplest and best ways to save, said Certner.

"The money is already taken out," he said. "You don’t have to do anything. It’s easy, as opposed to trying to manage that money."

This article was written for our sponsor, AARP North Carolina