The rise in stock and housing markets has created a “wealth illusion” affecting American households. In other words, many Americans perceive their wealth as being more substantial than it really is. High numbers on stock tickers and housing price indexes can paint a rosy financial picture for those who hold related investments. But, as many are discovering, all that glitters is not gold.
This illusion of prosperity can translate into a false sense of retirement readiness. Households may overlook the importance of sustainable financial planning, believing their current wealth trajectory to be sufficient.
However, stock and housing market booms are typically temporary. Relying solely on these can leave households unprepared for the true costs of retirement.
28% of all US households believe their retirement days are securely financed, when in fact they are at risk of falling short, according to the Center for Retirement Research at Boston College.
These households cut across the low, middle, and high-income brackets. But the wealth illusion affects high earning households disproportionately to the other two, at 32% to 26%.
Market booms might provide a temporary lift, but they don’t replace the need for robust savings. Households that fail to factor in potential hiccups like rising healthcare costs in the twilight years may find themselves needing to significantly cut back on their lifestyle and standard of living in retirement.
Path to Preparedness
Perhaps the worst impact of this wealth illusion is that many Americans in need of more savings may be in a position to save more, but don’t realize they should. Luckily, there are a few ways to find out if you’re one of them.
According to financial planners, a good starting point to gauge your retirement readiness is by employing free online retirement calculators. Inputting your financial data into a handful of such tools can give you a ballpark figure of your retirement nest egg. But nothing beats a one-on-one consultation with a financial planner. Their expertise can gauge where you’re at, guide you in navigating market uncertainties, and help develop a personalized retirement plan.
Remember, it’s never too early or too late to plan for your retirement. Markets may boom and bust, but that doesn’t mean your financial stability must. With informed planning and mindful saving, you can ensure your golden years are, indeed, golden.
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