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Retirement should be an exciting event in a person's life, but COVID-19 has forced many Americans to take their eyes off of their future and focus on staying safe and managing the financial impact of the pandemic. Prior to the pandemic, one in four Americans didn’t have any retirement savings, but things have only gotten worse: the spiking costs of living, along with inflation and depleted savings have left many Americans’ retirement plans in disarray.

Roughly 55 million Americans are over the age of 65 and many of these people who were born at the peak of the baby boom will be reaching the 65-year-old milestone this year.

The current American economy is putting pressure on many individuals and families approaching retirement. One of the concerns people in retirement have is the cost of long-term healthcare in case of illness while in retirement. In fact, in 2020, spending on healthcare increased as a percentage of GDP by more than it has done since 1960 with average spend per person at around $12,500.

What’s needed is a rethink of finances in retirement - from educating our youth to better planning for the golden years to putting in place legislation that helps citizens hedge against financial crises.

Inflation has reached a 40 year high, eroding income and their hopes of retiring. In fact, 56% of Americans say they would not be able to cover an emergency cost of $1,000 from their savings and 21% say they don’t save any money at all.

During the COVID-19 pandemic 9.6 million Americans lost their jobs, and Americans over 55 who were unemployed out-paced mid-level professionals for the first time.

There is no silver bullet solution, but there are incremental steps we can and should take today to help retirees better plan for and manage their money in their golden years.

'Nudges', inspired by behavioral economics, could be a powerful part of the solution. In their book "Nudge Theory", economist Richard Thaler and academic Cass Sunstein argue that small changes, subtly implemented, can act as a ‘nudge’ towards better outcomes.

For example, a paper from the Pensions Institute argues that devices like auto-enrollment with payroll deduction, auto-escalation, and withdrawal restrictions can help people to save more for their twilight years. This is simply through inertia; once someone has signed up, they rarely cancel.

Yet behavioral nudges are not the whole solution, they are one piece of a larger puzzle. Perhaps it's time to consider an option where every American should have an automatically enrolled individual retirement plan via their job.

However, tinkering with the mechanism of savings will only work if supported by a thorough, continuous financial education. There are more financial tools at our fingertips than ever before that can, and should, empower all of us to appropriately save for retirement; the missing piece is the knowledge of how much to save, how to save and what to invest in.

Case in point, Albert Einstein famously said that ‘compound interest is the 8th wonder of the world. He who understands it earns it… he who doesn’t pays it.’

Many people, old and young, do not have a strong grasp of the power of compound interest, and this can cost people thousands of dollars. For example, if a 25-year-old saves $500 a month at a 6% interest rate, they would accumulate $930,000 for retirement by age 65.

When speaking with people who are about to retire or currently in retirement, they typically want to travel, spend time with friends & family and be financially and physically comfortable as they age. As the costs of housing, healthcare, and education have outpaced wages in the last 20 years, many Americans have been left with inadequate savings struggling to pay their monthly bills. People, at any age, and especially those in retirement, should not have to worry about being able to pay their utility, housing, and food bills.

Now is the time to develop solutions that can effectively help people learn to save, invest, and better plan for retirement. By ensuring that financial literacy education starts earlier in life, we will be better equipped to protect ourselves from financial insecurity later in life.