posted on November 20, 2016 15:03
Every retirement vision requires planning, and even if yours isn’t clear yet you can take steps to prepare for it today.
You need to determine:
- Where you are currently.
- Where you want to end up.
- How you will get there.
Where You Are Currently This is the easy part. You know how much income you bring in a year, you know how much you have saved, and you can easily estimate how much you will receive in Social Security benefits. You also have a pretty good idea of how much you can afford to save.
Where You Want to End Up What would you be doing if you weren’t working? You will still be the same person when you retire, so you will probably end up pursuing similar interests and passions. Envision what your day-to-day or week-to-week lifestyle would entail; there will be a lot of hours to fill.
Think about whether this lifestyle will be expensive. Consider that you will have fewer costs in some areas such as childcare, savings, and job related expenses.
However, you may have higher costs in other areas. Maybe you plan to travel or join a country club. Your retirement expenses may be just as high as your current expenses, maybe even higher! All things considered, advisors often recommend that you plan to replace 80% of your current income.
Do you plan to work in retirement? Many retirees supplement their savings with some form of work, but don’t rely on this income. While 7 out of 10 workers plan to work in retirement, only 25% end up doing so.
How Will You Get There Less than a quarter of workers say they know how much they need to save for retirement. The “Saving Today” worksheet is a tool that will help you estimate how much you should save this year and what percentage of your salary you should save moving forward. Print it out and take five minutes to sit down with a calculator and think about your future.
Results If your target savings goal seems overwhelming, don’t panic. There are ways you can increase your chances of reaching your retirement goals. Here are three:
Save More Try to increase your savings and get as close to your target as possible. The change doesn’t have to be immense; you could increase your deferral rate by 1% or 2% a year instead of all at once. For example, you could earmark your holiday bonuses or yearly raises as additional retirement savings. There are many ways to get there.
Retire Later Not only will you have more years to save up and fewer years in retirement, but you will also receive more in Social Security benefits! Additional years of work can make a big difference in your retirement preparedness.
Take Investment Risk This is a less sure-fire way to retire comfortably. Investing in funds with higher potential returns also means exposing yourself to the risk of larger losses.
All three of these decisions may have an impact today and the future. Sit down with your loved ones and consult your plan's advisor as you think about what steps make the most sense for you.
Your plan’s upcoming annual review meeting will delve deeper into these topics. For now, keep thinking about what your vision of a perfect retirement looks like and make a list of questions to discuss with the plan’s advisor.
This is intended for informational purposes only and should not be construed as personalized tax or investment advice. Please consult your tax or investment professionals regarding your specific situation.