For the past couple of months, millions of French citizens have been protesting against President Emmanuel Macron’s unpopular pension reform, which will raise the retirement age from 62 to 64. Some of the demonstrations have even turned into violent riots in response to the new law.
Could a similar crisis erupt in the U.S.? The state of Social Security is, after all, precarious. And, just like in France, the population is rapidly aging and contributing to an imbalance in worker-retiree ratio. “We face the same demographic challenges here that France is facing,” Richard Johnson, the director of the Urban Institute’s Program on Retirement Policy, told ABC News. “There will be more retirees per worker in the future than we have today. That’s the challenge.”
Not to mention the fact that an increasing number of Americans have no choice but to rely on pension payouts for their retirement. The pandemic’s impact on the stock market decimated some people’s nest eggs, while some of the older workers who were planning on working for a few more years were forced to quit their jobs.
baby boomers turn 65 each day, and the entire generation is expected to reach retirement age by 2030.
A recent report from the Administration on Aging predicted that the elderly population (65 and older) in the U.S. will climb to roughly 80.8 million people in 2040 – more than double the number in 2000. The current retirement age is 67, which is already among the highest in the world. A poll conducted by Redfield & Wilton Strategies on behalf of Newsweek found that 49% of respondents believe that the retirement age in the U.S. is already too high.
Additionally, 39% of Americans support the pension reform protests in France, and 55% could imagine a scenario in which similar protests erupt in America. When asked whether people should work longer considering that they live longer, 37%of respondents said they either disagreed or strongly disagreed. In other words, Americans are sympathetic to the current plight of French citizens – and perhaps concerned with their own fate.
What’s going on with Social Security?
Concerns would be justified considering the current state of Social Security, which is facing serious issues. Social Security is the system on which 67 million Americans rely on for monthly payments. Its trust fund is expected to run dry by 2033, which would translate into benefit reductions if nothing is done by then. Democrats and Republicans have been clashing over ways to address the issue, with no resolution in sight.
“Social Security is increasingly an important part of retirement income,” Richard Fiesta, executive director at the Alliance for Retired Americans, told Newsweek. “And that is unfortunately due to the decline over the last 30 or 40 years of separate pensions from one’s workplace, as well as a lower savings rate into retirement. So Social Security has become more important for retirement income, unfortunately, because of declines in other sources.”
What you can do to prepare for retirement?
So, if you can’t fully count on Social Security in the future, what can you do to prepare for retirement? Experts say that you need about 80% of your pre-retirement income to live comfortably once you stop working. Saving and investing as early as possible is therefore crucial.
One of the most important things you can do to prepare for retirement is pay off any high-interest debt you may have. According to a recent study by The Ascent, people with the most credit card debt are those aged 50 to 59 which is quite close to retirement. If you do have credit card debt you have options. You can clear your credit card debt faster and easier and also save money on interest with recommendations on consolidation tailored just for you.
But this is easier said than done if your ability to save is affected by life events such as job loss or a global pandemic. There are a few popular formulas that estimate how much you should have saved by a certain age, which can be discouraging if you feel behind. So, the first step is to start putting money – even the tiniest amount of money – aside. Set up automatic withdrawals to pay yourself first. Build the habit of saving, even if you can only save a modest amount. If you have debt, look into debt consolidation options to create a plan to pay it off while paying as little interest as possible.
The other critical thing is investing your savings so that interest can compound and you can earn returns that outperform the rate of inflation. Working for an employer who offers a 401(k) retirement savings plan is a tool in your arsenal. Aggressively maxing out your contributions is ideal, too. If you’re lucky, your employer will match them. If you’re self-employed, look into an individual retirement account (IRA), which offers similar tax advantages as 401(k)s.
As far as other investments go, you don’t need to know much to get started. Don’t let intimidation prevent you from reaping the benefits of compounding. Keep it simple. Talk to a bank advisor. The important thing, again, is that you start making whatever money you are able to put aside work for you. The younger you are, the more risk – and potential reward – you can afford because you can tolerate fluctuations before withdrawing funds. The closer you get to retiring, the more conservative you’ll want to be in your portfolio.
Finally, even though it’s hard to control systemic forces, staying politically engaged remains an important factor in the future of not only your own pension, but the pensions of millions of Americans.