Building and protecting a retirement nest egg continues to be a major challenge for Americans. Despite progress being made in some areas of the economy, the side effects of the Great Recession have left millions of displaced workers unprepared for their golden years.
A recent report from the Transamerica Center for Retirement Studies (TCRS) found that 62% of unemployed and underemployed workers are “not too” or “not at all” confident about their retirement prospects. The negative outlook can largely be traced to the fact that many new jobs being created are part-time or low-wage. In fact, more than 8 million Americans are underemployed due to economic reasons.
“Amid signs of economic recovery and an improving unemployment rate, millions of Americans are still unemployed or underemployed,” said Catherine Collinson, president of TCRS, in the report. “Many displaced workers have raided their retirement accounts to make ends meet, and many may be overlooking the importance of retirement benefits as they seek meaningful employment.”
Almost 60% of displaced workers report having some kind of a retirement savings account, but an alarming 36% of those workers have made a withdrawal from those accounts. As a result, the estimated median household savings in retirement accounts among all displaced workers is only $7,500.
Let’s take a look at five basic steps to help repair your retirement nest egg. These may seem elementary, but the numbers show that people need every bit of help they can get.
Ideally, workers should build an emergency fund before a financial disaster occurs. This will help cushion the blow and help avoid treating a retirement account as cash. In the end, it comes down to placing needs over wants.
For most people, the day will come when they can no longer earn a paycheck. This may be the result of health issues or financial hardship, but making sacrifices such as downsizing your home or buying a used car instead of a new one can have significant impacts on finances in the long-term.
2. Stay alert
Don’t become discouraged by unemployment or underemployment, and always look for new opportunities as early as possible. Some people may feel embarrassed by their job situation, but informing others may help you find a job sooner rather than later. On average, it takes about 36 weeks for an unemployed person to find a new job.
“The passage of time out of work, especially the one‐year mark, can have a detrimental effect on retirement accounts,” said Collinson. “Forty‐two percent of those displaced for a year or more took a withdrawal compared to only 23 percent of those displaced for less than a year.”
3. Update skills
It may be time to update your resume by improving professional skills to match the needs of employers. If feasible, attending college for an in-demand degree may be one option. A less expensive option may be vocational school.
“A college education can open employment doors and offer higher pay — and lead to substantially more retirement savings,” Collinson said in the TCRS report. “Displaced workers with a college degree have saved an estimated median of $60,300, versus those with a high school diploma or some college who have saved $3,300.”
4. Consider benefits
In addition to salary, don’t forget about retirement benefits when considering employment opportunities. Only 17% of displaced workers said generous retirement benefits were one of their top-three most important characteristics of a future employer. In fact, 31% cite a convenient commute as the most important to them. In the current financial environment, you have to be flexible and focus on the long term.
“Many displaced workers may be overlooking the importance of retirement benefits when seeking employment opportunities, which could put them at a greater disadvantage in terms of rebuilding their retirement savings,” said Collinson.
5. Get professional help
Naturally, you are the person that cares the most about your money, but seeking the help of a well-researched financial adviser can greatly improve your chances of retiring.
According to a report from HSBC, respondents with average incomes who use professional financial advice when planning for retirement have the greatest levels of retirement and other savings. Those who had a financial plan in place with a professional had so far accumulated $203,228 in retirement savings, compared to only $98,005 among those without a financial adviser.