Lots of people look forward to retirement, but the majority has not set aside enough money to retire. Much of that has to do with unexpected costs.
University of Wyoming Extension Specialist Cole Ehmke has looked at a lot of studies surrounding personal financial management. He said some of the numbers are alarming.
“Something like 40 percent of the people don’t have access to a 401K and so easily 50 percent of people have not contributed any kind of a balance to it. And if they don’t have a 401K, that’s our main tool for retiring, social security…you can’t really rely on that. And that balance’s in those 401K’s, likely less than $100,000, even those who are pretty close to retirement.”
Ehmke said people typically underestimate what they need for retirement. One example surrounds health care.
“54 percent say they are overwhelmed with the medical expenses that they are going to face in retirement. It’s a huge issue. If there were a couple 65-years-old that was going to retire today, over the course of their retirement they would have medical expenses of over $275,000, even if they were in good health.”
Vicci Colgan was a school teacher and was an attorney for the state of Wyoming during her career, which means she gets a state pension. Colgan retired three years ago and she wishes she had contributed even more to supplemental retirement accounts.
“I was always good about putting money away, but I wasn’t good about how that money should be invested and how much I wanted to have in my own deferred compensation plan at the beginning of retirement.”
Because she has retirement accounts she’s better than most, but Colgan still worries.
“I’m doing fine now, but I do kind of worry about creeping inflation for 20 years down the road.”
Colgan admits that health care costs are among those concerns.
Polly Scott is the Wyoming Retirement System’s Deferred Compensation Manager. She says people should start saving when they first get a full-time job, even if it’s only four or five percent of their income. She says those who wait to contribute are costing themselves money. Scott says the biggest thing she sees is that people don’t invest enough into 401K’s or deferred compensation plans.
“People in the private sector, they need to be saving about ten percent minimum and then even go a little higher. And then in our system, because we do have the pension plan, you know we can back that down to five or six percent people should be saving on their own on average.”
Ehmke and Scott both say that the best thing to do is to consistently use a retirement calculator to determine how much money you will need in retirement. Scott says it can be daunting at first, but it gives people something to shoot for. Scott says factoring in money for emergencies, such as health care needs, is critical.
“You know sometimes people start using their home equity for those types of expenses, one of the best-kept secrets in the United States is that Medicare doesn’t pay for long-term care and you have to have insurance for that or you have to pay for that from some long-term assets you’ve built up.”
Medicare also doesn’t pay for things such as hearing aids or dental care. Scott says consistent investing and saving should help you save enough money, but when you save it, leave it there. Even when you are between jobs.
“Because that’s extremely detrimental to your overall retirement security. People never really make that up.”
October 22 through the 28 is Wyoming retirement security week. Scott says that’s a great time to review your financial security.