Planning for retirement can be a source of worry and frustration—especially as you creep closer to middle age and retirement. Even with investments in place and ongoing 401(k) contributions, you may fear that you’re not on track for retirement. Living your twilight years in comfort takes years of planning, and the sooner you start, the better your chances of securing your financial future. If you’re wondering if you’ll have enough money to maintain your quality of life during retirement, you’re not alone.
Factors that can derail your retirement savings
Saving for retirement can be challenging if you’re living paycheck to paycheck. However, delaying saving until you can save comfortably may seriously impact your ability to benefit from compound interest, or you could run out of time to save. Do you feel that you have too many expenses to save for retirement? Shifting financial priorities could free up some money to save.
Setting a budget—and sticking to it—can do wonders for managing your money. Budgeting can even help determine where you can save more. First, track all your expenses for a couple of months, or take a look backward using your bank statements, so you know where your money is going. Then sort them into categories that are either “needs” or “wants.” Determine which “wants” expenses could be eliminated and budget that money for retirement. There are plenty of apps that can help automate this process.
Perhaps you don’t think you’ll need any savings for retirement. Maybe you plan to work your entire life, or that Social Security benefits will be sufficient. The truth is that, although possible, neither of these assumptions is practical or realistic. At some point, you’ll likely need to retire. Social Security benefits are a safety net for seniors but are typically insufficient to cover living expenses in retirement. Often, bridging the gap puts a financial burden on your family.
How to discover if you’re on track to retire
A retirement calculator is an excellent tool to help you estimate your current retirement plans. Speaking with a Financial Advisor is a natural next step to dig into the details of your retirement. A Financial Advisor can take a closer look at the factors that determine whether you’re on track for retirement and help you adjust your plan to target your goals. To get a relatively accurate estimate with a retirement calculator, you’ll want to know:
- Your current age and your target retirement age. You can use the life expectancy calculator from the Social Security Administration to get a general sense of your life expectancy.
- Current annual household income and the percentage of your current income that you will need annually during retirement. Every year, the Social Security Administration makes cost-of-living adjustments that affect Social Security, which could help you estimate your future need.
- Your current retirement savings and the amount of contributions that you make to retirement each month.
- If you have a pension. Determine its expected value by reaching out to your company’s human resources or benefits department.
- Your personalized estimate of social security benefits or use a general estimate based on your current income.
- The project inflation rate for the year of your retirement with this inflation calculator.
- The estimated rate of return on your current investments.
Once you’ve filled out all the information, the retirement calculator will return a comparison of your current retirement savings plan vs. an estimate of what you will need at retirement. Try this calculator to see whether or not you’re on track for retirement:
What’s your next step if you’re not on track for retirement?
Realizing you are not on track with your retirement savings often means making some adjustments. The closer you are to retirement, the more critical it is to speak with a Financial Advisor about your current investments and retirement goals. A Financial Advisor is an objective professional who can help you understand your options. By utilizing the services of a financial or investments advisor, you can create a plan that considers your current financial obligations while prioritizing your retirement savings.
How a Financial Advisor can help you get on track for retirement
A Financial Advisor can help you determine the options you have for getting on track for retirement. Depending on your circumstances, this could be as simple as adjusting your budget to contribute more consistently to your retirement plan. Some strategies you may consider with your Financial Advisor include:
Adjust your retirement date. Delaying your retirement can allow you to maximize your Social Security benefits because each year of earning contributes to your retirement benefits and decreases the amount of time you will draw benefits. Every year you work after you reach full retirement age until you are age 70, your Social Security benefits increase by a certain percentage based on your birth year.
Prioritize your 401(k) contributions**. Instead of springing for a vacation or making impulse purchases, a sound budgeting strategy can help you funnel those funds into your 401(k). Take the time to carefully consider your cost-saving options to continue meeting your needs and obligations while also ramping up your 401(k) contributions with the additional savings. For example, if you cut one premium coffee purchase per week and contribute $20 towards retirement, the savings could add up. For a 30-year-old, contributing $20 more per month to an investment with an estimated rate of return of 6% could have over $40k in additional funds when retiring at age 70.*
Minimize your expenses. Review your bank statements from the last few months with a critical eye on “needs” vs. “wants”—you might be surprised to learn how much you spend on non-essentials like eating out, impulse shopping and streaming services. Additionally, if your children have moved out, consider downsizing your home. You’ll likely save money on taxes, utilities and other expenses.
Pay yourself first. Rethink spending choices by adopting the pay yourself first strategy. Focus on creating a spending plan that puts retirement saving ahead of all other expenses. By prioritizing savings, budgeting for your retirement is no longer an afterthought.
Time debt payoffs to align with retirement. To limit the ongoing expenses you’ll have during retirement, time paying off debt payoffs before your target retirement date. Paying off your home, vehicle, RV and other debts before you retire reduces the strain on your monthly budget during retirement. Along with this strategy, it’s essential to avoid taking on any new unnecessary debt.
Consider lifestyle adjustments. Adjusting your lifestyle to create more wealth requires an in-depth understanding of where your money goes and how much value you get from your spending. If your favorite entertainment options eat up a large portion of your budget, consider some more budget-friendly hobbies. If you have more time than money, spend it wisely and look for deals on frequent purchases like food and clothing. Look for opportunities to buy used rather than new on large purchases such as your next vehicle, furniture and appliances.
Explore new career opportunities. One way to boost your income is to explore new career opportunities. Taking time to improve your skills and grow your value with employers can pay off in the long run. Look at your current employer to determine if there is room for growth. If not, then consider other opportunities, paying attention to their benefits package and salary options. For example, OnPoint offers some excellent career options that come with tuition reimbursement and on-the-job training so you can build your skills while growing your career.
Consider post-retirement career options. If you’re not on track for retirement, traveling the world in retirement may not be an option. So, if you’re not jet-setting, how do you plan to spend your time? Many people choose to continue working in retirement. Determining the options for a post-retirement career or part-time job options now means you can lay the groundwork you need to take advantage of opportunities once you retire.
Pay off 401(k) loans. If you’ve tapped into your 401(k) for a loan, prioritize repaying this debt. 401(k) loans are attractive options for people who need access to funds and either don’t qualify for traditional loan options or prefer the lower interest rates through 401(k) loan options. Borrowing from yourself may seem like a good option, but it should be a last resort. When you decrease the balance in your 401(k) account, this can have a long-term impact on your investment portfolio due to missing out on years of compound interest. If you have already taken a loan out against your 401(k), then consider making catch-up contributions as soon as you’re able.
A Financial Advisor can help you determine which strategies could be most beneficial in helping you increase your savings while getting back on track with your retirement. By enlisting the ongoing help of an advisor, you’ll have the accountability and guidance that you need to stay on track and make changes. Do you need investment advice to help you get on track with your retirement savings? Consider requesting a complimentary consultation with a local Financial Advisor.
Learning that you’re not on track with your retirement can be frustrating, but use this knowledge to your advantage. Find a Financial Advisor you can trust to help you formulate a plan now, so you can have the money you need to enjoy the years ahead.