Here’s How to Give Your Financial Education a Boost
They don’t often teach how to create a retirement savings plan in school, but it’s time to put your thinking cap on and ask yourself a question: what grade would your retirement savings plan earn if it was put to the test today?
It’s tough to know exactly how much you should save, what strategies might work for you, and exactly how to get to where you want to be. Just like in the classroom, though, the best way to get a passing grade for your retirement savings plan is to educate yourself and put in the effort.
If you aren’t sure where you stand – or you know that your plan could be strengthened – the following advice can help you cram for your retirement savings plan.
First, if you don’t feel like you’ve earned an A+ on the retirement progress you’ve made to-date, know that you’re not alone. The Road to Retirement Survey from TD Ameritrade found that most Americans feel like they’re doing poorly saving for retirement. Of surveyed adults ages 40 to 79, the majority gave themselves a grade of C or lower. This result seems fair when you look at the data, too. Nearly two thirds of 40-year-olds have less than $100K saved for retirement, and one in five of those in their 70s have less than $50K saved.
If you’re in this boat, these steps will help:
1. Keep building your nest egg
There are many reasons people can’t seem to attain the savings they need. Yet there are as many reasons you should save for retirement as there are excuses not to. Even if you’re only able to save a small amount at present, stay the course. It all makes a difference down the road.
If you’re under 40 and have saved even a small amount, you’ve got several decades ahead of you to make up for any lost time. If you start putting away $500 a month in an IRA or 401(k), you could retire in 25 years with an additional $380,000, assuming a conservative annual average of 7% market returns during that time.
If you’re closer to 60 than to 40, though, you have less time to get your retirement savings plan right. Putting money into savings now will mean you struggle less in the future. Consider some big-time ways to sock away more money—maybe a second job, moving to a smaller home with a smaller mortgage, or other ways to build up your savings.
Say you’re around 57 years old and want to retire in a decade. If you save $500 a month for the next 10 years, you’ll only be able to save $83,000, assuming the same conservative 7% rate of return mentioned above. If you double that and put away $1,000 a month instead, you’ll double your savings amount. While $166,000 may seem like a lot of cash, it’s hard to stretch that through your retirement years. Instead, consider readjusting your lifestyle and maxing out your 401(k).
Social Security benefits can help anyone approaching retirement have peace of mind. Avoid making the mistake of depending too much on them, though. As the system works now, benefits are projected to replace around 40% of the average American’s preretirement income, but most people need around 80% of their former earnings to live at the comfort level they’re accustomed to.
Still, there are significant benefits to Social Security. It’s a government-backed, 8% guaranteed investment. Navigating the system can be complicated, but there are ways you can plan to get the most out of your retirement options, especially these days a people live much longer than they used to.
These tips can help you increase your Social Security income:
- Earn as much as you can right up until full retirement age (usually 66 years old), or even beyond
- Work at least 35 years or more
- Wait as long as possible to claim (If you wait until age 70, you can boost your benefit by 8% a year)
- Pay attention to taxes—50% to 85% of your benefits could be subject to federal taxes if you reach a certain income threshold
These strategies are helpful, but remember that even if you maximize your Social Security benefit in these ways, you’ll likely still have to make up the difference with personal savings. So, preparation is critical.
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If you have concerns about your retirement savings plan, the good news is that there are different strategies for different stages in life. No matter where you are, there are ways to plan and prepare for where you want to be.
When it comes to retirement, having your finances in order is about more than just money. It’s a direct indication of how much you’ll be able to savor that chapter of your life.
It’s important to consider how ready you are. Do you make the grade, or are you like one of the many Americans who barely pass the retirement readiness test? Readiness requires discipline, clearly defined goals, and actionable plans. This requires quite a bit of hard work and preparation, but the result is enjoying and maintaining the same standard of living you’ve experienced while in the working world.
Get A+ Strategies for Your Retirement Savings Plan
If you think you would benefit from expert help with your retirement readiness plan, contact Lane Hipple Wealth Management Group at our Moorestown, NJ office by calling 856-638-1855, emailing firstname.lastname@example.org, or to schedule a complimentary discovery call, use this link to find a convenient time.
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