Say you’re going on a long road trip. Before you go, you’re most likely going to make sure that you have everything ready – a full tank of gas, check your windshield washer fluid and tire air pressure, directions to your destination, estimated arrival time, stops you plan to make along the way, etc.
The road to retirement is a similar journey. If you haven’t yet reached your retirement destination, regardless of your age, it’s a good time to assess where you are and where you hope to be when you retire. Perhaps you’re well on your way, or maybe it’s time to step up the pace to ensure that you get where you want to be when it comes time to retire.
According to the 2016 Lifetime Income Survey by TIAA, fewer than half of Americans know how much they have saved for retirement, and only 35% know how much monthly income their savings will generate. At the same time, studies show that 54% of Americans are retiring from the workforce prior to age 65.
On the Road: Assess Your Retirement Readiness
Retirement readiness includes many things, including checking on your savings, investments, and employer-sponsored or other retirement plans. Where are you now in your retirement savings?
The first step in assessing your retirement readiness is to tally up your current savings. Add up all of the money that you have accumulated in an employer’s retirement plan, like a 401(k) or 403(b), and any Individual Retirement Accounts (IRAs) including IRA certificates.
While many pre-retirees are still falling short of their target and have savings that are too small, not saving anything at all is the only thing worse. The Federal Reserve estimates that one in five people who are age 55 to 64 have zero set aside. Even if your savings aren’t where you had hoped, you still have time to put yourself in a much better place before you retire.
If you haven’t yet begun to save, start by determining the best places to allocate some of your income for retirement. An employer’s plan is an excellent first choice if your company offers one, particularly if they offer a matching contribution. Remember to save at least enough to qualify for the match, so you don’t miss out on ‘free’ money.
Next count your other assets: the value of your home, any other valuables, your vehicles, etc. You may want to consider any additional income you expect to receive in the future, such as an inheritance that you already know about.
And finally, estimate the total other pension income or Social Security that might come your way, even though that may be a little more difficult to calculate.
Destination: Your Retirement Goal
Do you have enough in your nest egg? How much is enough? Once you have an idea of what you have saved, next you’re going to want to see where you are compared to your retirement savings target. To do that you’ll need to understand how much monthly income you’ll need to generate once you’re no longer working.
How much you need in retirement can vary depending upon your lifestyle, your age and health, your debts, where you expect to live, etc. In general, most experts suggest saving 4 to 10 times your annual salary based upon your current age.
Steps to Better Prepare
If you’ve determined that your current savings aren’t going to be enough to cover your retirement needs, there are a couple of ways to address the potential shortfall. The first is to accelerate your savings rate. You may not be able to afford to go from saving 10% of your salary in your 401(k) to 20% right away, however, you can still take smaller steps to move toward that goal like increasing your deferrals by 1% or 2% each year. That way you’re saving more, and if you’re getting raises at the same time, you won’t miss the extra money that’s coming out of your paycheck.
If you’re already maxing out your employer’s plan, it’s time to look at where else you can save for retirement while enjoying some tax benefits like an IRA. For 2016 and 2017 you can park up to $5,500 in a traditional or Roth IRA. If you’re 50 or older, you can save an additional $1,000 per year. Please be sure to check the income limitations on the deductibility of IRA contributions if you or your spouse (if married filing jointly) are covered by a retirement program at work.
Enjoying the Ride: The Bottom Line
Getting retirement ready is an ongoing process and requires careful planning. Analyzing where you are now and where you’d like to end up is essential for shaping your goals. Proper retirement planning requires an understanding of the workings of the various retirement tools, including the taxation of retirement and investment vehicles. It also requires considering beneficiaries, distribution plans, and more. A Patriot financial advisor can help you with making the right decisions to increase your savings. Ask any branch staff member to arrange an appointment or simply call us.
Whether you are financially comfortable or are of limited means, retirement planning is a good practice and can help you take control of your own future. And Patriot is here to help.
*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (CFS), a registered broker/dealer (Member, FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal.
Investment Representatives are registered through CFS. Patriot Federal Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.