At first, she was on the right track. She landed a marketing job in Chicago within a month of graduating, and now at 32, her annual salary is close to six figures. On paper, financial stability should be a given.
But when she read a headline that said most Americans don't have enough money saved to pay for a major car repair, it hit way too close to home. The same thing happened when she read that many Americans will never be able to afford to retire.
Logically, she knows worrying about money isn't productive. But between her living expenses, lack of savings, and limited financial knowledge, she's not sure whether she needs to change course or how.
Does Lisa's struggle sound familiar? If so, you're not alone. Prudential's 2018 Financial Wellness Census Opens in new window indicated that women, minorities, and younger generations are more worried about their financial future than men, whites, and Baby Boomers, especially when it comes to retirement, health care costs, managing expenses, saving, and their family's financial stability.
Whether one, two (or all) of these topics concern you too, know that it's never too late to face your financial fears and take charge.
Worry #1: Will my savings last through retirement?
With all the unknowns that come with retirement—like how long you'll be able to work, how long you'll live, and your health status—it can be difficult to pinpoint the exact amount of money you'll need. However, one thing is certain: delaying gratification now can seriously reduce the chances that you'll run out of money in retirement. The sooner and more consistently that you make retirement contributions, the better the chances that you'll have the money you need.
Take advantage of retirement accounts
If your job offers a plan like a 401(k), 403(b) or 457 and you have the option to contribute toward it, consider putting at least 10% of your pre-tax income to the retirement account each year. As your income increases, so should your contributions until you reach the maximum amount allowed. For 2020, the IRS allows you to contribute up to $19,500 Opens in new window, or $26,000 if you're 50 years old by the end of the calendar year. If you're self-employed, you may be eligible to contribute Opens in new window up to 25% of your compensation, or up to $57,000, to a SEP-IRA.
In either case, and based on your income and tax filing status, you may also be eligible to contribute to an IRA and/or a Roth IRA. For the 2020 tax year, the IRS Opens in new window may allow you to contribute up to a total of $6,500 a year (in one, or a combination of both accounts), depending on your age.
Track your progress
Once you start saving for retirement, keep tabs on your progress with simple, age-based milestones. A financial advisor can provide those milestones based on your income and life circumstances.
In addition to managing contributions, the Center for Retirement Research at Boston College Opens in new window recommends waiting a bit longer to retire: Those who wait will have larger social security checks and more 401(k) savings distributed over fewer years.
Worry #2: Will I be able to afford health care?
It's smart to be aware of the costs of your future health care. An analysis that consulting firm HealthView Services compiled for Barron's Opens in new window estimated that a healthy 65-year-old couple with annual income of $214,000 to $267,000 could expect health care coverage to cost about $565,000 throughout retirement, including Medicare premiums.
Know how to offset costs
You may face considerable health care costs when you're older, but having a sense for what you're up against means you can proactively plan to offset some of them. According to Medicare.gov Opens in new window, you'll be enrolled in Medicare Parts A and B once you claim Social Security benefits. According to the site, most people do not pay for Medicare Part A (hospital insurance); and costs for Part B (medical insurance) depend on your income. If you opt for Part C (Medicare Advantage), or Part D (prescription drug coverage), those costs depend on your income at the time, too.
If you're interested in securing long-term care insurance to prepare for future health care costs, the American Association for Long-Term Care Insurance Opens in new window (AALTCI) recommends purchasing it in your mid-50s. The AALTCI explains that premiums for long-term care insurance are based on your age at the time you apply. Assuming you're in good health at that point, an insurer may offer you additional discounts (which are locked in once issued). If you wait to buy long-term care insurance until you're in your mid-60s, your health could be worse, and premiums could be 6% to 8% higher than if you'd secured the coverage 10 years before.
Start saving your health care fund now
If you have a High Deductible Health Plan (HDHP), you may be able to contribute funds to a Health Savings Account (HSA) to pay for current or future health care costs. In the 2020 tax year, the IRS allows Opens in new window those with self-only HDHP coverage to contribute up to $3,550; those with family HDHP coverage can contribute up to $7,100. Like a retirement account, the funds carry over year to year. You own the account, regardless of whether you establish it through your employer or change jobs.
You can opt to use HSA funds like a savings account that you've earmarked to pay for medical costs, but some experts recommend investing part of the funds (assuming your plan allows it).
Worry #3: Will I be able to keep up with current expenses?
If your budget is so strained that you're not sure you can pay your bills, it's time to focus on reducing expenses and eliminating costly debt.