Apr 5, 2019 3 min read

April is Financial Literacy Month, a time to learn new ways to improve your financial knowledge. We try to help in this regard in this weekly column.

A lot more will be written 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 look at retirement.

For many years, planners talked about the three-legged stool of retirement planning: pensions, Social Security and private savings. A three-legged stool is very stable. All legs will sit on the floor even if there are differences in length. Unfortunately, the retirement stool for many people is not as stable.

Today, many baby boomers do not or will not receive a pension. This is a much different situation than our parents experienced. The median pension, according to the Pension Rights Center, is only $9,376 per year. State, federal and local pensions are 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, which 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. Because many Americans are expected to live into their 80s, this would provide about $3,000 per year in income. That 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 these money sources, 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 to find a way to save more. It can be done, but it does require some sacrifice.

The No. 1 fear of seniors, in survey after survey, is running out of money during retirement. Being solely dependent on market returns will not alleviate 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, which will lower many people’s standard of living and stress government benefit programs.

Because of this, in a rare bipartisan 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 businesses to offer retirement savings plan to 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 percent higher participation rate. There are discussions about 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 Americans today. Make changes in your life to enhance your family’s future.

Gary Boatman is a Monessen-based certified financial planner. He is author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”

To submit columns on financial planning or investing, email Rick Shrum at rshrum@observer-reporter.com.