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Introduction
A retirement savings account is a retirement plan funded by employee contributions from their salary and employer contributions paid to a registered insurance institution to provide policyholders with constant income flow on retirement (De Villiers et al., 280). Even though both employee and employer make their monthly contributions to fund retirement benefit plan, it has been noted that retirement benefit programs are short-term short insurance plans which enable policyholders cannot maintain their previous living standards while they were employed. This paper seeks to discuss the issue of inadequate retirement savings faced by insurance policyholders.
Inadequate Retirement Saving
The critical issue associated with this topic is that most retirement programs are short-term insurance plans; thus cannot save enough money for policyholders to maintain the current living conditions on retirement. Statistically, most employees who do not have other saving plans or investments apart from employment policy face many financial difficulties on retirement (De Villiers et al., 280). The reason is that when an employment contract is over, dismissed, or retire, their monthly or annual salaries are stopped. As such, the primary source of income for retired employees is retiring benefits which are paid from the insurance payment scheme. However, the amount paid from the social security retirement benefit plan is a smaller percentage of the average employee’s income after retirement. For example, social security retirement benefit plans pay up to 40 % of the monthly salary of employees after retiring (De Villiers et al., 280). Instances, the amount paid to be increased to 50 % maximum or can be reduced according to the employee request. Since the amount paid as retirement benefits is a smaller percentage compared to the amount of salary earned by employees during employment.
Solutions to this issue
The issue of retirement programs being short-term insurance plans thus cannot save enough money for policyholders to maintain the current living conditions on retirement can be solved in various ways. First, establishing an individual retirement account (IRA) can help to increase employee benefits on retirement (De Villiers et al., 281). Depending on the amount of income of employees, one can establish a private saving plan which can provide more benefits to employees on retirement. Sometimes, contributions paid towards an individual retirement account are tax-deductible thus can increase retirement benefits for employees on retirement.
Reining in spending is another way that can be used by employees to solve the problem of low income to meet their basic needs on retirement. Rein in spending involves reducing daily expenditure by employees and setting aside the excess amount for future use. In most instances, employees cut-off their spending on luxurious items to use the excess money to meet their basic needs upon retirement when their income flow is low. Preparing a monthly personal budget can also be used to solve the issue of inadequate retirement savings to maintain the regular expenses of policyholders (De Villiers et al., 281). Therefore, all employees should adopt this strategy to enable them to have enough savings to meet their basic needs after retiring.
Automating savings can also be used to solve this issue. When employees feel that the amount of paid as employee retirement benefits cannot meet all their needs on retirement, they can open an automatic saving account with salaried accounts to automatically deduct a certain percentage of salary for saving purposes. In doing so, insurance policyholders can be able to save enough finances to meet their personal needs after retiring. But, employees or policyholders should open accounts with reasonable interest rates to generate enough interests that can meet their needs on retirement.
Insurance life expectancy growth
Another vital issue associated with inadequate retire savings is the rapid growth of insurance life expectancy, which leads to a high risk of outliving one’s savings. The issue of life expectancy rate has raised many discussions due to the inability to make correct life expectancy for which insurance policy should cover. The old-age problem is associated with many aspects such as economic and psychological concerns, which create a different opinion on the amount that a policyholder should pay monthly to receive reasonable benefits on retirement. As such, the issue has been one of the leading causes leading to inadequate retirement savings among employees (De Villiers et al., 283).
Solutions to this issue
Setting savings and investment goals can be used to provide solutions to the growth of insurance life expectancy. In such a case where insurance policyholders do not agree with the amount of monthly premium to pay towards the insurance policy, employees or policyholders should set alternative personal saving schemes or investment plans that can generate enough income to meet employee needs on retirement (De Villiers et al., 283). However, this should be done by setting proper benchmarking strategies to learn how other people succeed in setting investment and saving plans to meet their needs on retirement.
Increasing life expectancy can be used to solve the problem of insurance life expectancy growth. When insurance companies increase global life expectancy, it will give policyholders to make enough contributions that can enable them to earn a reasonable income, which can meet all their financial needs for retirement.
Works Cited
De Villiers, Johann U., and Elze-Mari Roux. “Reframing the retirement saving challenge: getting to a sustainable lifestyle level.” Journal of Financial Counseling and Planning 30.2 (2019): 277-288.
Morrissey, Monique. “Policy Solutions for the Retirement Crisis: The US retirement system is flawed and inadequate. The remedy? Expand Social Security and ensure employers and workers contribute to simple, affordable retirement plans.” Generations 43.3 (2019).
Ghilarducci, Teresa, Michael Papadopoulos, and Anthony Webb. “Inadequate retirement savings for workers nearing retirement.” Schwartz Center for Economic Policy Analysis and Department of Economics, The New School for Social Research, Policy Note Series (2017).