We all know that planning for retirement is important. Even so, as many as 25% of Americans have no retirement savings. So, what’s the disconnect here?
The problem with a long-term savings strategy is that many of us don’t like to plan long-term. We like quick, fast gratification and putting money into a retirement account for 30-40 years may seem hard…or even unachievable.
Here’s a bit of good news. Retirement planning doesn’t have to be complicated and can be exciting — and attainable — if you approach it the right way.
We’ve broken retirement planning strategies into three life stages (beginning, midway, and near retirement). However, before we get into these categories, it’s important to discuss the “heart” behind retirement.
What do we mean by this?
Why the heart of retirement really matters
Think about why people generally save for retirement. They know it’s a good idea. They know they should be putting away a certain amount every month. And they know they should be working towards a certain monetary goal. These are “head goals.” These goals are all centered around “how” or “what” to save for retirement.
But what so many people miss in the retirement planning stages is something that matters even more than “head goals” — the “heart goals.” These goals are centered around “why” you should save for retirement.
Yes, putting money away is important, but what’s driving you to save? Is it to finally build your quiet get-a-way in the Rocky Mountains? Is it to travel around the world, experiencing foreign countries, cultures, and food? Is it to support and spend time with family members?
If you don’t know your why, then saving money (your head goals) has no real value and can feel like a burden. However, when your retirement goals resonate with your heart, you will be much more inspired to achieve them.
Take a minute to figure out your why behind retirement. What are your deepest values, your dreams, and the things in life that really matter to you? Paint a picture of what you really want to achieve in retirement. Make goals and get excited about it. Once this is done, the saving part will become much easier and yes, even exciting!
Now that we know why you should save, here’s how to save — from beginning to end.
Retirement Planning by Age
Beginning: 20s to 30s
In the past, it was uncommon for people to begin saving for retirement in their 20s. Thankfully, this statistic seems to be changing. A recent Schwab study shows that Millennials are putting big emphasis on flexibility and new experiences in retirement. They are pursuing passions rather than simply putting money away because they feel pressured to. This is what is driving them to save earlier.
Here are a few, good strategies for retirement planning in your 20s and 30s.
Set goals
Sit down to review where you are today and what you want life to look like in retirement. Then, figure out how much you think you will need in retirement to meet those goals. If you need help estimating how much money you will need, check out this retirement calculator.
Track your spending
Now it’s time to make sure you stay on track to meet your goals. Did you know that the average American spends $1,497 on non-essential items per month? This is why it’s so important to budget. It’s your opportunity to tell your money where you want it to go, rather than wondering where it all went.
Set up automatic contributions
Most employer retirement plans are set up to automatically enroll employees unless they say otherwise. A certain percentage of their paycheck is automatically deducted each pay period. If you’re not part of an employer plan, you can still automatically put money into your account. Setting up automatic contributions is a smart way to build your savings each month and maximize your future retirement.
Midway: 40s to 50s
Most people in this stage of life have been saving for retirement for a while. But this doesn’t mean that you’re safe to “set it and forget it.” Make it a habit to regularly check in with your retirement plan — giving you the confidence that you’re on track.
Don’t immediately spend your raises
What’s your first reaction when you receive a raise at work or are gifted with a sizeable amount of money? Like many, your first impulse may be to spend it. Instead, consider adding this money to your retirement savings. Or increasing your contributions.
Here’s a good rule of thumb from Morningstar:
- If you are 10 years away from retirement, spend 20% of your raise and save the remaining 80% for retirement.
- The closer you are to retirement, the more you should save. An easy way to remember this is to save your age as a percentage of the raise. If you’re 20, save 20%. But if you’re 50, save 50%.
- If your income goes up by $1000, save at least 33% of that. This means you would be putting $333 into your retirement savings.
Revisit your plan regularly
It’s best practice to revisit your retirement plan annually, if not sooner. Why? You may experience big life changes — such as job changes, raises, financial unpredictability, or divorce — that could require updates to your plan.
Sure, it’s likely that you won’t have to make changes each year, but it’s better to make small adjustments often rather than waiting until you’re about to retire and realizing that you don’t have enough to retire.
Focus on getting rid of debt
Did you know that almost 31% of those who save for retirement say credit card debt is the top reason they don’t put more away? This begs the question: can you pay off debt and save for retirement at the same time?
This subject is controversial, but most people believe you can do both. For those of you who have an employer match, this especially holds true. For now, you can focus on lowering your contribution rate and putting that extra money towards your debt. But as soon as your debt is paid off, make sure to refocus your energy on retirement savings.
Near retirement: 60s and 70s
As you head into your retirement years, it’s more important than ever to keep a careful eye on your retirement funds. To avoid retiring with less than you anticipated, keep up with these few key strategies.
Reduce the risk in your retirement accounts
As you get older, it’s a good idea to move from more aggressive investments to more conservative ones. Why? If the market tumbles, you won’t have as much time to recover as you did in earlier years. It’s important that they’re neither too aggressive nor too conservative. Talk to your financial advisor for best tips.
Decide when you want to retire
You know you’re getting close to retirement. But how do you know when you should take the leap? Start by determining how much you will need in retirement. Make a detailed financial plan showing how much money you will need to spend monthly. Then, determine if you have enough in retirement savings to make that work.
Ask yourself these questions before making the big leap into retirement:
- Am I financially prepared?
- Do I have a retirement budget?
- Have I eliminated debt?
- Do I have emergency savings?
- Do I have health insurance?
- Am I supporting kids or grandkids?
Optimize your social security
More than 65 million people receive social security. If you’re nearing retirement, it’s time to start making some decisions about your own social security. You can start collecting social security benefits at 62 but, if possible, hold off on this. The longer you wait, the more you will receive. In fact, you can increase your benefit by 8% each year for every year it is deferred beyond your retirement age.
We hope these practical tips give you the information you need to confidently prepare for retirement — whatever life stage you may be in. If you have further questions, we’d love to help guide you in the right direction. Schedule a meeting today.