Retirement has changed in our country over the past several decades. Once, retirement for the average employed person was covered through a pension plan that their employer mostly handled. Social Security also helped ensure that people would have enough money to live out their days once they retired, which happened at a reasonable age for most people. These days, people are living longer, medical care is more expensive, and our money simply doesn’t go as far as it used to. Financial planning for retirement is becoming more and more of a necessity.

Now, surviving on Social Security is a pipe dream, and pension plans are few and far between. Instead, more and more people are financial planning for their retirement independently, and it’s pretty much a necessity if you’d like to enjoy your golden years. Here, you’ll find some common ways that people are saving for retirement, and what they’re doing if they come up short.

Common Ways to Save for Retirement

Lots of people opt to save for retirement using a 401k plan, which allows people to invest in a retirement fund, tax-free. Many employers who offer a 401k plan also match a certain amount of employee contributions or contribute a certain amount themselves.

IRAs, or Individual Retirement Accounts, are another popular retirement savings plan. It allows you to invest your money to allow it to grow and generally offers more flexibility about where you invest that money than the average 401k. Roth IRAs are a very popular form of this type of retirement plan.

Annuities are another retirement plan that is established through an insurance company where the participant pays into the plan during an accumulation phase and receives a set amount of money back out during the annuitization phase.

Some people plan to cover their retirement with other types of resalable assets that they buy in their younger years like homes, cars, or collectibles.

What Happens if You Didn’t Financially Plan for Retirement?

So long as you contributed to Social Security, you will be able to claim those benefits once you reach retirement age. The amount you receive will depend upon when you begin drawing your benefits. However, if you don’t have other savings in place, you likely won’t be able to live on these benefits alone. Medicare should also be able to help you with medical expenses.

When retirement savings aren’t enough to cover living expenses, sometimes people continue working later than they’d imagined in order to pay their expenses and continue saving.

Many people turn to their assets at this point, a home, for instance. This may include taking out a reverse mortgage that can give people access to either a lump sum or monthly payments from their home equity and allow them to quit paying mortgage payments.

Sale-Leasebacks for Retirement

A sale-leaseback is another way that people can gain access to the equity in their home for retirement without leaving their home. This is also perfect for people who are retiring, are not interested in staying in their current home throughout retirement, but haven’t decided where exactly they want to go.

Key Takeaways

It's never too early to start financial planning for retirement. However, if you find yourself at retirement age without enough funds to get through this next phase of your life, there is an alternative solution. Talk to a financial advisor to learn more about what options might be best for your situation.