NEW YORK (MainStreet) — Wealthier professionals are not immune to the U.S. savings crisis. Some 64% are anxious about the amount of retirement savings they currently have, and retirement ranks second to keeping up with daily expenses as the financial matter that worries Americans most, according to a CBS News study by SSRS in Media, Pa.
“Doctors, lawyers and other older Baby Boomers are finding themselves with woefully inadequate savings as they approach retirement age because they ignored the need to save for most of their life,” said Andrew Murdoch with Somerset Wealth Strategies. “As their incomes grew, so did their spending and they never created a budget.”
“The relative dearth of savings among Baby Boomers is probably the worst of any generation,” Murdoch told MainStreet. “It is certainly much worse than the previous generation, which lived through the Depression. This created great financial insecurity and prodded them to over save and under spend.”
Statistically, Millennials are following in the Boomer’s footsteps.
Adults under 35 years old now have a savings rate of negative 2% after a flirtation with thrift due to the recession, according to Moody’s Analytics.
“People of all ages but especially young people should make a point of being thrifty,” said Murdoch. “That means they should look for sales when they shop, buy a used instead of a new car and search for deals when they go on vacation.”
Ways for Boomers to catch up and for Millennials to stay on course include investing in annuities five to ten years before retiring, securing a reverse mortgage and treating their savings like an ongoing bill.
“Annuities provide guaranteed income and income protection, which mitigates the inevitable volatility in the stock market and reduces the amount of your money at risk,” Murdoch said. “People who purchase annuities to supplement their investments can also take more risk in their stock mutual funds if they choose to because they know they will have guaranteed income from annuities.”
By borrowing up to 60% of the value of their home, a reverse mortgage can help retiring homeowners create income.
“Reverse money flow boils down to Americans being their own bank to recapture four massive wealth drains, which are taxes, interest and fees paid to banks, market losses on investment capital and depreciation on bigger purchases,” said John Jamieson, author of The Perpetual Wealth System (Morgan James Publishing, 2013)
In his book, Jamieson advises creating income by pooling money inside a whole life insurance policy and using those funds as a bank.
“The biggest benefits of these policies are principle protection against market loss, tax free growth, tax free withdrawals and easy penalty free access to the cash value at any age for any reason,” Jamieson told MainStreet. “This is a superior way to save for retirement and create an estate for our families at the same time.”
—Written for MainStreet by Juliette Fairley