Rising health care costs in the U.S. are causing five million self-employed baby boomers to put off retirement, as they are worried about their savings.
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A new survey by TD Ameritrade (AMTD) found these boomers, among 15 million self-employed Americans, are coming up about $335,000 short (or $1.7 trillion combined) from saving $1 million for retirement.
“Even though we’ve been in a growth economy, they are still feeling an anxiety and aren’t focused on their financial future,” said Matt Sadowsky, director of retirement at TD Ameritrade. “There’s a need for them to prepare for that.”
Why are they not saving?
The rise in healthcare expenses has impacted many, including self-employed, small business owners. The survey found 26% of respondents said health care costs have “reduced their ability to save,” and 35% said increasing costs have actually “hurt their business.” More than half want the next president to put a focus on reducing health care costs.
Will that happen?
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According to the survey’s respondents, the answer is no. As the 2016 presidential election is just under one year away, 64% said they don’t believe their needs will be among the next president’s “top five priorities.”
The impact of an interest rate hike
As Janet Yellen and the Federal Reserve continue to postpone raising interest rates, many of the self-employed surveyed are breathing a sigh of relief, since more than half (54%) believe a rise in rates by the Fed would “cause them hardship.” However, the latest jobs report may have the Fed changing its mind on raising rates. Data from the Labor Department showed strong growth in the month of October, as 271,000 jobs were added to the U.S. economy. According to the report, the unemployment rate also fell to 5%, its lowest level since April 2008.
So far in the U.S., the cities of Seattle, San Francisco and Los Angeles have voted to raise the minimum wage to $15 an hour. Some who took part in TD Ameritrade’s survey don’t want to see that come to their cities-- 40% say they “do not support a $15 minimum wage hike.” 30% of respondents said they think it could “negatively affect their business.”
Sacrifices of self-employment
According to the survey, 52% of respondents said they have had to “work long hours,” 40% have had to “cope with constant financial pressure” and 30% said their work caused them to “spend less time with their family.”
More than half of the survey’s respondents said they are behind with their savings for retirement. Nearly 70% said they “do not have a specific savings goal in mind, nor do they have a backup plan.” Seventy-six percent said if they can’t save enough, they would just keep working.
What can they do?
According to Sadowsky, the self-employed should focus on saving ahead of time, especially with more resources, like the Treasury Department-developed myRA, being readily available to Americans.
“Save today so you can have the resources for the future,” he said. “Don’t assume you can just step back into the business. SIMPLE IRAs are a nice way for small business owners to save for retirement and enjoy the benefits along the way.”
Sadowsky added, “There’s a need to increase awareness of the long-term savings need.”
This survey was compiled from findings of 1,505 U.S.-based self-employed adults aged 18 or older.