Retirement planning is all about saving money today with the expectation that whatever you sock away will be worth more when you need it to cover your costs during retirement. While there are no guarantees in the market, as long as the rules of the game remain fairly consistent, you'll have a strong framework to follow to help you accomplish your goals.
Every once in a while, though, either milestones get passed, long-term trends reach tipping points, or the rules of the game change. 2017 is no different on that front, which means that both opportunities and risks are facing you as you plan your retirement this year. Read on for three bold predictions of things to come throughout the rest of the year.
No. 1: Someone will retire a millionaire based on their 2017 investments
Thanks to inflation adjustments over time, the amount you can contribute to your retirement plans has increased. In 2017, if you're under age 50, you can contribute up to $5,500 to an IRA and $18,000 to an employer-sponsored plan like a 401(k). That's $23,500 that can be socked away in tax-advantaged plan. If that money compounds at 9% annually -- about in line with the stock market's historical long run returns -- it will become $1.04 million in 44 years.
This means that, if you're fresh out of college and able to come up with that kind of money, you can potentially become a millionaire by retirement from that one year's contribution. It's a challenge for anyone to come up with that kind of cash, and it's particularly tough for a new hire just starting out in life. Consider it a bold challenge for seniors getting ready to graduate -- and an opportunity to jump-start your financial life.
No. 2: Social Security will not get patched in 2017
President Trump campaigned on preserving Social Security through economic growth rather than via direct spending, or tax changes affecting the program. Whether or not that will remain his plan in the future, the reality is that the various bills currently being tossed around Congress currently have very little chance of becoming law this year.
History -- even as recently as late 2015, when the most recent patch made it through the system -- suggests that Social Security's standing as the "Third Rail" of American politics remains intact. Proposed changes that either cut or reduce the rate of growth of the program are frequently greeted with charges of "throwing granny off the cliff." Changes that increase taxes are decried as economically destructive.
The net result is that any reform ideas -- even good ones -- typically can't get traction until the only alternative is the massive benefit cuts that come from the trust funds emptying. Then, and only then, will lawmakers be likely to find both the courage and willingness to compromise to patch it again.
Unfortunately, this means that Social Security's trust funds will remain on track to run out of money around 2034, slashing benefits for all recipients by more than 20%. As a result, as you plan for retirement, you should consider the risks of either that kind of reduction in Social Security, or the potential of an equivalent tax hike to cover its costs. Invest accordingly, and you should still have enough time to make up for the implications of that coming shortfall -- or the patches to try to hold it together.
No. 3: Many retiring baby boomers will take on jobs to make ends meet
Much digital ink has been spilled about how baby boomers are now reaching retirement age at the rate of around 10,000 per day. But just because they may be retirement eligible doesn't mean they're retirement ready. Indeed, a 2016 survey by PricewaterhouseCoopers indicated that 43% of boomers would be not be able to meet their basic expenses if they were unemployed for an extended period of time.
And what is retirement, other than an extended period of unemployment? Granted, it's one with potential benefits from Social Security, Medicare, and perhaps from a benevolent former employer, but those only go so far. If nearly half of boomers -- those nearing or perhaps even past a traditional retirement age -- can't make basic ends meet without a job, they'll likely either want to hold on to the ones they have, or pick up some type of paycheck in retirement.
The good news is that, with many of those aging boomers continuing to work, the economy will benefit from their wages. The not-so-good news is that the Generation X'ers who come behind them may have to wait a bit longer for the leadership spots they hope to step into as those boomers eventually retire.
You can keep your retirement plan on track
While these predictions may very well come to pass, you should still have the opportunity to continue following your retirement savings plan. None of these reasons look likely to restrict your ability to fund your accounts. They may give you reasons to consider making small adjustments, but that's all part of the long-term process of successfully getting you to, and through, your retirement.