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People, including Black Americans, may be better off now rethinking how they plan for retirement.
The new strategic approach is for retirement and “longevity planning” as well. That concept calls for creating a comprehensive plan for those years surpassing traditional retirement times.
A vital part of retirement planning includes people living longer. No one, of course, knows how long they will be here. But that is something to explore when considering how much money you will need to save and invest in retirement. The expected retirement lifespan, fueled by longer life expectancy, has vastly risen from 12.8 to 18.6 years for men and from 16.6 to 21.3 years for women since 1970, according to this report.
Retiring At 65 is No Longer the Norm
The reality is that the traditional retirement age of 65 is no longer common, with more people expecting to retire nearly a decade later at 74. Larry Fink, CEO and chairman of BlackRock, the giant asset management firm, contends that 65 is indeed perhaps too early for people to retire, calling it a “bit crazy.” He offers more of his take here.
And 2024 is expected to be a banner year for retirement. Consider about 4.1 million Americans will turn 65 this year and every year through 2027, according to this report.
Kevin Matthews II, founder of BuildingBread, a pathway to a bountiful retirement, told BLACK ENTERPRISE how people can finance their life and living conditions beyond the customary retirement age 65.
A former financial adviser and best-selling author, Matthews runs an investor education firm that enables people to accumulate wealth. He has helped scores of individuals plan for retirement through, in part, managing assets exceeding $140 million during his 10 years of experience.
Fundamentally, people will be better positioned for retirement if they understand how much they will need to retire, given they will live for an extended period, combined with the fact they may want to sustain or maximize their lifestyles.
Another key point to consider is longevity risk. That is the possibility of living longer than expected, adding an unintended burden on your retirement savings. It can be important as no longer having money is a major concern for retirees.
No Age Limit for Beginning the Retirement Planning Process
Matthews says a good number is having 25 times your annual income at retirement age. Figure out how much you need and design a strategy to get there. He listed that among the largest ways to cut longevity risk is taking care of your health and reducing debt. He added looking at alternative investments, possibly including annuities, can help build income that outlives you.
He pointed out that people—including younger professionals, millennials, and Gen Zers—must become more knowledgeable about the economy, investing, and financial trends overall.
Young professionals especially must begin investing early through their 401(K) and other investment vehicles. Matthews views retirement as a proxy for “the stock market.” He declares that throughout their careers, they must manage their portfolios and allocate assets to take advantage of the power of compounding and protect their assets by understanding risk factors.
Also, be mindful that good asset allocation, including stocks, bonds, and cash, can help bring the total return you desire over time. A financial adviser can help you develop that plan.
“The younger you are, the better off this is going to be for you and the cheaper it is going to be for you,” Matthews says. “That’s something that I don’t think enough people really think about.”
He emphasized that in 2023, “Blacks were among the top racial groups of first-time investors, which I “absolutely adore” because we needed to get there. There have been a lot of apps, a lot of resources, and a lot of platforms that have introduced us more to the stock market. “It’s not the only asset class, but it is one of the most important.”
Value of Compound Interest and Overcoming Longevity Risk
Matthews says it’s not only the financial piece but also the compounding of experience. “The longer you wait, the more expensive it becomes to try and hit whatever that golden number is going to be. I started investing in my kids at age zero. So, all they need is $100, $75 a month. If you’re starting at zero, by the time they are 30, they’ve been investing for 30 years. So, they already have a head start.” He shared that his kids, ages six and nearly four, had more money than him when he was in school.
Don’t make blunders a big deal. “They’re going to make some investment mistakes at some point in time, but I would rather them learn and make those mistakes at 16, 17, 18 than make those mistakes at 25, 30, 45, where they really hurt, and they really matter.”
Generally, compound interest occurs when the interest earned from a savings or investment account is reinvested. The perks can include helping your money make money and speeding up the growth of your savings and investments during a given period.
“So, I don’t care if you could only invest $50 a month. Anything greater than zero does compound. So, that is still going to be beneficial, not overnight, but over time,” Matthews says.
Matthews says the key is to begin. “Start early, have it automated, so you don’t have to sit there and look at it every single day, and just make sure you are slowly inching your way up.”
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