What is Your Retirement Savings Goal?
Our journey through life involves setting goals such as graduating from college, buying home, starting a new business, or traveling the world, and working to accomplish those goals. It’s invigorating to identify a dream and set plan in place to achieve it. The feeling of pride that comes from reaching a new milestone and realizing the fruit of our efforts is one of a kind.
Saving for retirement is a very important life goal but it can feel overwhelming to contemplate. While it sounds ideal to accumulate enough assets for an enjoyable retirement, it can seem unattainable with so many competing demands on our hard-earned cash. The amount we set aside each month for retirement may not appear to make much of an impact on our account balances.
However, it’s critical to set a goal and start saving. The Employee Benefit Research Institute found that those who calculate a savings goal for retirement are more confident about their ability to enjoy retirement, than those who did not set a savings goal.
So, how do you set a retirement savings goal? First, it’s important to get a good sense of your current monthly expenses. Then, think about what will change in retirement. Will your mortgage be paid off by then? Do you want to set aside extra funds for travel? Next, it’s important to establish reasonable assumptions about inflation, the rate of return your investments will earn over time, and your life expectancy. Finally, don’t forget to take into account sources of income in retirement such as Social Security, pensions, or part-time employment. Seek the advice of your financial advisor to determine if your savings goal is reasonable.
Once you have a goal in mind, the next step is to start saving. Make sure to contribute to your retirement plan at work in order to take full advantage of any employer matches. An employer match increases the amount saved right away. Second, consider contributing to an IRA. Individuals can contribute up to $5,500 to an IRA in 2015 (plus an additional $1,000 if age 50 or over). If income is below phase out thresholds, contributions to a traditional IRA are pre-tax and earnings grow tax deferred. Contributions to a Roth IRA are post-tax and earnings can be withdrawn tax-free (if certain withdrawal requirements are met). Another savings option is a taxable investment account.
To reach your savings goal get creative about increasing your retirement savings each year. As you pay off debt, such as credit cards or student loans, divert the monthly payments to saving in your retirement accounts. Consider investing tax refunds or windfalls toward retirement. When you get a raise bump up your retirement contribution at work or decide to increase your retirement contribution 1% each year. Through the effects of compounding over time, small increases in savings amounts can potentially make a big difference.
By setting a retirement savings goal and increasing your savings, you will make real progress towards your goal of an enjoyable retirement.
Source: “Don’t Let Your Retirement Savings Goal Get You Down”, Forefield, 2015