Critical steps to bring your retirement savings plan into the 21st century

Retirement coin jar FBN

Americans need to adapt their retirement savings plans to account for changing economic conditions and longer life spans.

While the retirement age has traditionally been set at 65, longer life spans have made it difficult for the average American to save enough to comfortably retire by that age. A study by the World Health Organization and Imperial College in London, released in February, found that the average U.S. male lives 76.5 years, while women live about 81.2 years. That number is expected to rise in the coming years, with life expectancies increasing to 79.5 years for men and 83.3 years for women.

The longer the timeframe between the age of retirement and the time of passing, the more magnified potential savings issues become, Mark Fried, president of TFG Wealth Management, LLC and author of “Road Rules for Retirement,” told FOX Business.

“If you’re going to be in retirement for 25 to 30 years, that brings a whole new dynamic for planning for young folks, middle-aged folks and those entering retirement,” Fried said.

One indicator Americans need to plan around is inflation. As Fried pointed out, if you’re in retirement for 10 years you may not experience that big of a change, but 30 years is enough time to experience a significant increase in prices that could wipe out a portion of your savings. Even though high inflation hasn’t been a problem throughout recent years, in fact the Fed has had issue with persistently low inflation, that doesn’t mean it should be counted out.

Longer lives are also posing a problem for Social Security, which is expected to run out of funds in less than 20 years. There are questions about whether the program will survive in its present form.

How to adapt

In the current economic environment, Fried said it’s all about generating enough cash flow to support an individual’s retirement lifestyle, which means generating cash flow "on an increasing basis over time."

He said the best way to mitigate risks to savings is to invest in a combination of products including bank, insurance and market-based products.

Investors can't start saving early enough either, Fried added. A study from the Economic Policy Institute (EPI) found that nearly half of American families have no money stashed away for retirement. The median amount working-age families (ages 32 to 61 years old) have saved is just $5,000.

When it comes to dealing with inflation, Fried said the average American should aim to save 2 to 3% above the rate of inflation on a regular basis.

And don’t be afraid to enlist the help of a trusted professional. It’s important for individuals over the age of 50 to find a quality financial advisor, as active management is becoming more important now than ever, Fried noted.