Retirement Planning: How to Build a Comfortable Nest Egg 

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Whether you are just starting your first job or have been in the labor force for decades, saving for retirement has never been more necessary to build and safeguard a nest egg for yourself to enjoy in your later years. 

Since the 1990s, changing economic and other conditions such as the 2008-2012 recession, have increased labor force participation for those at the older ages and full-time employment have been rising. According to the U.S. Social Security Administration (SSA), the current full retirement age is 67 years old for people turning 62 in 2022.  

Further, SSA predicts the number of Americans 65 and older will increase from about 57 million in 2021 to about 76 million by 2035. 

“People are working longer and there is a lot to do because of the housing crisis, which is the biggest expense people incur,” said Manoj Kulchania, associate professor of finance at Wayne State University’s Mike Ilitch School of Business. Inflation sees the gas and food bills going up and it makes it hard for people to retire.“ 

Waiting to retire, if possible, can mean a bigger payoff in the end. Currently, the retirement age to collect full Social Security benefits is 66, but this is scheduled to increase to 67. If you opt to take early retirement at 62, the average Social Security benefit would be $1,030 per month, but if you waited until 67, it would be $1,577. By waiting until age 70, you would get $1,995. 

According to a Bureau of Labor Statistics report on millennials in the labor force, from 2019 to 2029, “the bulk of millennials (often identified as those born between 1981 and 1996) will shift into the 35- to 44-year-old group. And as the chart shows, the U.S. Bureau of Labor Statistics (BLS) projects that age group’s labor force size to increase by nearly 4.5 million over the decade, which is the largest gain for a single age group.” 

“For any sort of planning for long-term retirement, you want to save away resources from your income,” said Kulchania,  “Managing your consumption and expenses is vital because only when your income or earnings is higher than your expenses will you be able to save. Good money habits will take you a long way, if you start small and start early, especially if you are still young.” 

There are several savings options to consider in order to save and invest early for your retirement. One of the best ways to prepare for retirement is with a retirement savings plan. There are three main types of retirement plans: defined benefit plans, defined contribution plans, and Individual Retirement Accounts (better known as IRAs). 

 

“Tucking some away as you go and letting compounding interest work in your favor, these are some of the things I teach my students,” said Kulchania.  

“It’s disheartening to see how many of my students don’t know how to invest or handle money, no one taught them. It’ll be good to see the new financial literacy requirement be more rigorous in high school to equip them with the right skills ahead of time.” 

In a defined benefit plan, more commonly known as a pension, employers put aside money for each eligible employee and invest it on his or her behalf. The employer guarantees a monthly benefit when the employee retires based on several factors, such as salary and length of service. 

An IRA is a retirement plan that employees open and manage on their own— usually without help from an employer. 

Policy plays a key role in protecting retirement savings. The Pension Protection Act of 2006 (PPA) institutionalized acceptance of best practices such as automatic enrollment, automatic escalation and adoption of qualified default investment alternatives (QDIA), the most common of which are target date investments.  

This provides employers with protections to automatically enroll eligible participants in retirement plans, increase their savings and help ensure that they are invested in age- and risk-appropriate investment portfolios. 

According to the Employee Benefit Research Institute 2022 Retirement Confidence Survey, “Thirty-seven percent of workers 25 and older and 19 percent of retirees say they don’t know where to go for financial or retirement planning advice.” 

Experts across the board tout smart, general money saving strategies to build better habits, including taking advantage of the following: 

  • Managing finances 
  • Learning personal finance 
  • Limiting expenses 
  • Avoiding high-interest debt 
  • Building an emergency fund 
  • Automating payment enrollments 
  • Sticking to your plan 
  • Not withdrawing early  
  • Taking the employer’s match (if offered) 
  • Investing in s=Short-term savings options: high-yield bank accounts, money market accounts and I-Bonds. 

“For the average Detroiter, those living paycheck to paycheck, it can be hard decisions [to fund] your necessary expenses and still save,” said Kulchania. 

 “But remember, you don’t have to make a million dollars to have a million when you retire. The financial institutions in the U.S by any [way] work. We just don’t teach young people how to use it. Start with informal conversations at the dinner table. Small changes and a determined mindset can make a big difference.” 

 

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