You work and save diligently in order to enjoy your retirement. However, a recent survey found that 80% of Americans have expressed anxiety that they have not saved enough to be financially independent in retirement.
Being ready for retirement can seem overwhelming, but there are some tangible, small steps that can start you on the right track. If you’re concerned about your own prospects for retirement, here are a few things to start doing differently right now.
Change #1: Better Understand Your Retirement Needs
The average person spends about 20-30 years in retirement. This is a significant amount of time in which to be financially independent, which means it’s important to plan accordingly. The Department of Labor recommends that retirees prepare to live on 70-90% of their pre-retirement income in order to maintain their usual standard of living. Because of this, it is important to start planning early. If you are living comfortably now, ask yourself if you have saved enough to continue living this way once you have retired.
This process starts with figuring out your cash flow TODAY. Once you have your current numbers figured out, you can start to project what you might need in retirement. It’s hard to know what you might want in the future without knowing where you are today.
Change #2: Contribute to a Retirement Plan
In 2018, almost 30% of private industry workers had access to a defined contribution plan at their job but still did not participate. If your employer offers a retirement plan, such as a 401(k), seriously consider making monthly contributions. If you’re younger, there may be other more pressing cash flow needs, but every little bit helps. The truth of the matter is, it’s never too early to start.
Compound interest accumulates steadily over time. This means that the earlier you start saving, the more your money will grow toward retirement. Plus, money contributed to a traditional 401(k) or IRA is tax-deferred, which makes it an appealing option for those looking to lower their tax obligation right away. Just be careful to make sure the money put into these retirement accounts will NOT be needed before retirement.
IRAs offer everyone a simple way to save money. To simplify the process further, consider establishing automatic deductions. Each month, a set amount of money will automatically be deposited into your IRA from your checking or savings account.
Change #3: Do Not Touch Your Retirement Savings
This is what we alluded to above. It’s important to make sure that you have the cash flow flexibility to put money into retirement plans WITHOUT needing to tap into it before retirement. Withdrawing money from retirement savings early will cost you, not only in potential penalties and taxes, but in time lost that it could’ve been compounding in the market. If you change jobs and have an old workplace retirement plan, try your hardest to keep that money invested in that account or another retirement plan of some sort.
Change #4: Talk to Your Financial Planner
One of the most impactful things you can do for your future retirement is work with a financial planner who is familiar with your situation. We can provide you with realistic expectations, savings goals and investment advice based on your tolerance for risk. Be open and honest in your discussions, and express your fears or anxieties regarding your future retirement.
When it comes to your retirement, it’s important that you’re knowledgeable, confident and diligent in your planning efforts. If you are used to living a particular lifestyle and want to continue doing it once you are no longer working, planning ahead is critical. And if you are unsure where to start, give us a call! We would be happy to answer any questions you might have. There is no cost or obligation. Click here to schedule an initial call today!