As you draw closer to your retirement years, does the prospect of leaving your career days behind excite you or cause you to panic? Even if you’ve saved diligently through the years, there’s always that lingering fear that you won’t have enough money to live a comfortable life in retirement. The Employee Benefit Research Institute’s (EBRI) 2016 Retirement Confidence Survey found that only 21% of American workers are very confident about having enough money for a comfortable retirement. (1)
Though financial professionals across the board recommend saving 10-20% of income toward retirement, few people actually do. In fact, the EBRI study also tells us that 66% of those who have saved have less than $100,000 put away. Thankfully, regardless of how much you have built up in your nest egg, it’s not too late to bulk up your savings and catch up for retirement in a hurry. Here are six steps you can take today.
The most obvious thing you can do is save more. Cut back on expenses, channel a healthy percentage of any raises and bonuses directly to savings, and automate savings increases of 1% of your paycheck every few months. It may not seem like you are making much of an impact, but every dollar helps.
Your increased savings can be invested in your company 401(k) or 403(b) plan or your personal IRA. If you are over 50, you (and your spouse, even if only you work) can invest an extra $1,000 per year into an IRA for a total of $8,000 for 2024. The catch-up contribution for those over 50 is even greater for 401(k) and 403(b) plans at $6,000, for a total contribution limit of $30,500. If you’ve managed to max out your IRA and workplace retirement plan and still aren’t saving enough, you can open a taxable brokerage account for your additional savings.
Your goal retirement date doesn’t have to dictate your investment time horizon. You may be planning to retire in 10 years, but you don’t need to set a 10-year horizon for your investments because you’ll only need a small portion of your nest egg in the early years. The rest of your money may stay invested for another 20 to 40 years. Make sure you invest with the right perspective so you can work towards as much growth as possible.
One thing to remember, though, is not to try to chase unreasonable returns as a way to make up for a lack of retirement savings. With the proper asset allocation, you can diversify your portfolio among different asset classes which seek to balance risk with reward. Taking on excessive risk in an effort to play catch-up isn’t worth the possibility of losing half your money when the next market correction strikes.
Insurance is one of those financial products that most people purchase and then promptly forget about. It would be worthwhile to review all of your insurance policies to ensure that you actually need the coverage you have. Your needs may have changed dramatically since you had a young family, and there is no point in paying for something you no longer need.
Also, you should make sure that you have Long-Term Care insurance in place once you are over age 60. Nothing drains a nest egg faster than living in a nursing home and paying out of pocket. Someone turning 65 today has almost a 70% chance of needing some type of long-term care services, (2) so it is important to consider how long-term care will affect your overall retirement plan.
The less debt you have when you enter retirement, the better. Reducing your consumer debt before retiring helps you lower your monthly expenses and enables your savings to grow and last longer.
Review all current debts you face and compare interest rates and balances. This can help you decide which to pay off first. Once you’ve eliminated credit card and auto debt, see how you can aggressively pay off your mortgage. Not having a mortgage could reduce your monthly expenses by up to a third and make a significant impact on how you spend your savings.
As you near retirement, your housing needs will be different than they were when you were raising a family. Many people downsize their homes prior to retirement as a way to reduce or eliminate debt and reduce utility expenses. In addition to the financial benefits of downsizing, a smaller home and yard require less work and cleaning, and a one-story home could be much more practical as you age.
There are several benefits to delaying retirement to work a few more years, or to work part-time during retirement. The biggest reason is that you have more time to earn an income and save. And every additional year that you work is one less year that you will be depending on savings and draining your nest egg.
Working longer will also allow you to delay claiming Social Security. While Social Security benefits can be claimed as early as age 62, the longer you wait to file, the greater the benefit you will receive. If you file at age 62, you will only receive 75% of your earned benefit, but waiting until age 70 allows you to receive 132% of your earned benefit. This can make a substantial difference in your retirement income for the rest of your life.
If you’re considering retiring before your Social Security kicks in, you may want to think again. In that case, you would have to draw down your retirement assets for 100% of your monthly expenses. Waiting until your Social Security benefits begin allows you to let more of your retirement savings remain invested for the future.
There are a number of options for boosting your retirement savings, but investing, insurance, and Social Security rules can be complicated and confusing. This is why it’s important to consider turning towards an experienced financial professional to guide you as you work to make the most of your money.
At Vision Wealth Advisors, we help you prepare for every aspect of retirement, including income and tax planning, healthcare decisions, estate planning, and overall risk management. Our goal is for you to spend your retirement assured, and to provide strategies aimed at helping to preserve your assets throughout your lifetime. No matter how old you are or how little you have saved, it’s never too late as long as you get started today. Send me an email at justin.buttrick@visionwealthpa.com or call my office at (570) 524-0120 to schedule a free, no-obligation review.
This content is developed from sources believed to be providing accurate information. The information presented herein is for educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security or recommendation of an investment strategy.
Certain information may be based on third-party data which may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Please consult legal, financial, or tax professionals for specific information regarding your individual situation.
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(1) https://www.ebri.org/pdf/briefspdf/EBRI_IB_422.Mar16.RCS.pdf
(2) http://longtermcare.gov/the-basics/how-much-care-will-you-need/
You work hard, save diligently, and are focused on preparing for retirement—but you have a few questions. Schedule a call with Justin below to learn more about how Vision Wealth Advisors can help:
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