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$1 Million No Longer Enough for Retirement

For many years, $1 million seems to be the standard when it comes to the amount of money you should set aside for retirement. However, even if it seems impossible to achieve for some, the truth is that it might not actually be enough to cater to your care during retirement. Inflation, the uncertainty of Social Security benefits, and longer life span all contribute to make the long-touted savings target inadequate.

Recently, there was a survey conducted among 226 investment advisers. Around 71% stated that $1 million is no longer sufficient for the needs of a regular American family. Many advisers recommend doubling or even tripling the amount. Younger generations are seen to be most vulnerable to the economic problems. When they grow older, they will inherit the problems caused today. The recommended savings (based on generation) are as follows:

  • Generation Y (18-26 years old): should have to save at least $2 million. Some advisers even stated the figure at $3 million to remain on the safe side.
  • Generation X (27-42 years old): should set a goal of $1 million. Around forty percent of the respondents believe that they should save $3 million.
  • Boomers (43-64 years old): the recommendations for baby boomers seem to be mixed. 35% said $2-$3 million is important. Meanwhile, 30% said $1.5-$2 million may be enough.

Based on the survey, it seems that the only generation that comes close to living comfortably for $1 million are seniors. Experts say that $500,000 to $1.5 million is enough for many families under that age bracket.

It is true that in general, people tend to spend less during retirement. However, unforeseen circumstances like inflation or illness can easily wipe out savings. It is important to get appropriate financial protection against these risks.

Making Extra Money during the Recession

Under normal circumstances, many people struggle to make ends meet.  But during the recession, the situation becomes even more desperate. As a result, many people are increasingly looking for ways to boost their income. Tighter credit, job loss, and the increasingly popularity of saving has forced many ordinary Americans to be innovative and tap into their networks, skills, and even hobbies.

Jennifer Winslow used to work part-time. While she needed to increase her income, she also didn’t want to give up the flexibility of part-time work. She turned to baking. Around five years later, her thriving bakery in Winslow, Maine has become an inspiration to people who want the same flexibility. Fortunately for individuals who have limited baking skills, there are many other ways to make extra money.

According to Gail Cunningham from the National Foundation for Credit Counseling, the key is to discover your skill or “what you think would be fun to do.” For example someone familiar with web development can offer courses that teach people how to build basic websites. Meanwhile, renting out a room in your house, getting paid for your opinion, or selling extra furniture can provide much-needed cash.

Selling It – this is probably the fastest way to generate cash. If you have unused or unwanted stuff in your home, you can make hundreds or even thousands of dollars from selling them. Set up a garage sale, auction things on eBay, or join flea markets. Some people have discovered astounding success on eBay. In fact, their products became so in-demand, they turned it into a business.

Renting It – real estate is the biggest asset of majority of people. Rent out a room, grab a roommate, or even rent your entire apartment. It is a good and almost hassle-free way to generate cash when you feel strapped. In the same way, cars can also be rented. Just be sure to complete all legal requirements before you get started.

Doing It – that means using your talent, capability, and interest. It can be as simple as teaching a class, working as a caddy, or cooking for small businesses. A lot of people also earn extra income by watching their child friend after all. One lucrative area to get into is to be a tutor. Pay ranges from $30 to $100 an hour.

The Pitfalls of Living off Severance Packages

The severance package is supposed to shoulder the financial shock of unemployment. However, for many laid-off workers, it also provides a false sense of security. Take the example of Paul Joegriner. Since he was laid-off as CEO of a small bank in March 2008 and with it his $200,000 pay was gone, he hasn’t worked since. His lifestyle including that of his family remains in comfort though due to savings and the severance pay.

He has been offered several jobs, all below what he used to earn. He decided to decline in the hope of landing something better. Mr. Joegriner, along with countless others in the US, may be classified as members of what is described as the “severance economy”. These are the individuals who used their severance pay to maintain their old lifestyles. Most lost their jobs in 2007 and 2008. Up to now, many remain unemployed.

Michelle Patterson was working for a publishing company when she was laid-off in January. However, she wasn’t concerned at the start because she has $20,000 from savings and severance combined. Eating out, drinking coffee at Starbucks, and paying for beauty treatments inevitably took a tool on her finances. A few months later, there still wasn’t any work, her condo already in the market for six months had no buyer, and her money is almost gone.

Like Mr. Joegriner, she had to take drastic cuts on her spending. Ms. Patterson doesn’t go to fancy salons anymore neither does she go to Starbucks every day. Similar to others in her situation, she doesn’t find it easy to adjust from a $140,000 to unemployment. However, Ms. Patterson muses that she should have cut her spending earlier.

Lawmakers have extended unemployment benefit for up to 20 weeks but t is expected to run out by the end of the year. 1.3 million Individuals are still depending on it. In addition, companies have trimmed severance packages from 21.8 weeks to 12.5 weeks salary. Some are even eliminating it altogether. Certain sectors including the auto and the financial industry have borne the brunt of the damage. Changes in the industry may mean that the eliminated jobs will not come back; the standard of living of its workers might take a permanent hit.

The New American Poor

Most Americans would never have thought it would come to this. The human toll of the recession is still increasing even as the economy shows signs of improvements. Millions of people remain out of work, with their unemployment benefits nearly running out. As majority of these individuals no longer have any savings to speak of, they are staring poverty in the face.

Strains on the Social Safety Nets

Analysts believe that the recovery will not be strong enough to uplift the long-term unemployed. They fear that more Americans will be left behind in this recovery compared to past recessions. These individuals might be classified into a new category: the new poor. They have long been accustomed to middle class life because of their previous employment. Now, they are relying exclusively on public assistance to see them through.

However, even the social safety nets in place are showing severe signs of stress. The unemployed may potentially rely on public services for years to come unless their situation improves. It is estimated that 2.7 million people will lose their unemployment checks by April unless it is extended. Without it, social organizations will be strained under the weight of its responsibilities.

Another disturbing figure is that the number of individuals unemployed for six months or longer is at its largest since 1948, when the government started tracking. They are now composed of 6.3 million people. Men have suffered the brunt of the recession. However, women between the ages of 45 to 64 were also severely affected.

Scarcity of Jobs

The scarcity of jobs even during recovery can be attributed to a range of factors. Some are already embedded in the modern economy. Majority of large businesses are now owned by institutional investors looking for fast profit, usually done by shedding staff. In addition, the manufacturing and some white-collar work have been outsourced to Latin America and Asia. A lot of companies are also hiring temporary staff and part-time workers.

Economic recessions usually forces people out of the middle class. Once recovery starts though, most will recover. In today’s case though, economists think that it will be difference. The economy will need to generate at least 100,000 new jobs in a month just to absorb new entrants. But with over 15 million people officially jobless right now, even a vigorous recovery will leave most unemployed.