80% of Americans Don’t Have a Financial Plan for Retirement, Suffer Retirement Savings Anxiety and Simply Don’t Know What to Do About It.
If this is you, read on to learn how you can Know More & Have More…now and in retirement
So here’s the typical hard-working American’s scenario…you work your butt off for most of your life, saving and investing consistently (earning your Social Security benefits along the way, and maybe if you’re lucky a pension too). All of this in order to enjoy your retirement. And then the day comes when you decide to call it quits.
Sounds pretty simple enough, right? Work, Earn, Save, Retire, Collect and Reap the Rewards.
However, the harsh realities of preparing for retirement for many can be stressful, complicated and overwhelming. In fact, a recent survey found that 80 percent of Americans have expressed anxiety that they have not saved enough to be financially independent in retirement and they don’t have a financial plan for retirement.1 61% of people have stated they are more fearful of running out of money in retirement, more than they are of death.2
If you’re concerned about your own prospects for retirement, here are six things you can commit to doing differently RIGHT NOW so that you can Know More & Have More (however you define more)…now and in retirement.
Commitment #1: Better Understand Your Retirement Needs & Possible Gaps
We all aspire to financial independence or retirement at some point in our lives. The average person spends about 20 years in retirement and many can spend 30 or 40 years in retirement (especially because we are living longer). This is a significant amount of time to be living off of your Social Security, pensions, and savings & investments. It’s critical to understand and plan properly for your needs (expenses) and income sources and know if you have a gap.
The Department of Labor recommends that retirees prepare to live on 70 to 90 percent of their pre-retirement income in order to maintain their usual standard of living.3 Therefore, it’s important to start planning early and know what you have, what you’ll need and if you’ll have a gap. Knowing this important information can help you adjust your plan and also help you create a “just in case” Plan B (for when we suffer a significant shock, like a global pandemic!). If you’re living comfortably now, and saving and investing what you should, ask yourself if you will have enough to support the lifestyle you want in retirement.
Commitment #2: Contribute to a 401(k) or Other Retirement Savings Plan
In 2018, almost 30 percent of private industry workers had access to a defined contribution plan at their job, but still did not participate.3 If your employer offers a retirement plan, such as a 401(k), making monthly contributions, especially if they offer matching contributions, is a no brainer. Younger employees find it easier to justify putting this off (live for the moment…save later). According to the National Institute of Retirement Security, 66% of working millennials have nothing saved for retirement.4
The truth of the matter is, it’s never too early to start. Compound interest accumulates steadily over time. This means that the earlier you start saving, the more your money will grow toward retirement. Plus, money contributed to a traditional 401(k) or IRA is tax-deferred, which makes it an appealing option for those looking to lower their tax obligation right away.
Commitment #3: No 401(k)? Utilize an IRA
You can put up to $6,000 a year into an IRA or $7,000 if you are 50 older, as of 2021.5 You can choose between a traditional IRA or a Roth IRA. The difference will be the tax advantages. A traditional IRA means you’re contributing money tax-deferred to your retirement account. When you withdraw in retirement, you will need to pay taxes on the withdrawals. Because the money is contributed tax-deferred, it lowers your current year’s adjustable gross income and the taxes you pay on that income.
Alternatively, a Roth IRA means your contributions are made with after-tax dollars. When you make withdrawals in retirement, they will be tax-free (because they were already taxed when deposited into the account).
IRAs offer everyone an extremely simple way to save money. To simplify the process further, consider establishing automatic contributions to your retirement savings (out of sight, out of mind) from your checking account. If you’re self-employed you have a number of options to consider for a retirement savings plan, including: a Simple IRA; a SEP IRA; a Solo 401(k); and a Roth IRA.
Commitment #4: Don’t Tap Into Your Retirement Savings
When you withdraw from your retirement savings prior to retirement, you lose valuable principal and interest that compounds and could have been income in retirement. Additionally, you may lose valuable tax benefits and pay a tax penalty and fees for withdrawing early. If you change jobs, you can leave your savings in your current retirement plan, or you can roll them over to your own IRA, or your new employer’s retirement plan. Consider your investment options for all three scenarios and pick the best one for your investment goals.
Commitment #5: Understand Your Gaps, Risk and Opportunities for Wealth building
As Lynn Toomey, founder of Her Retirement, a financial wellness and lifestyle platform for women says, “Fortune favors the smart, the bold and the prepared.”
And preparation is in the details. Her Retirement’s “Get Her Done” financial wellness in retirement approach, as an example, helps you uncover and understand the details of your current and future financial picture. The approach, which includes coaching, retirement readiness software and planning (by a vetted network of planners and advisors), gives you detailed insight into your Gaps, Risks and Opportunities for Wealth building. The approach also provides educational content and classes, a support community and actionable steps to create and implement your plan for retirement. And as Lynn says, “Not just any plan will do. You need a plan you understand and have 100% confidence in. This is how you Get Her Done.”
Commitment #6: Get Retirement Smart
Make a commitment now to take some classes/e-classes about your finances and retirement. While there are many options out there, we suggest you avoid the sales pitch “dinner seminars” and instead look for more objective educational classes. Check with your local technical high school, community-ed group, or check out these resources which offer virtual e-classes via Zoom and post-pandemic at local colleges/universities.
www.HerRetirement.com: 4 week, 6 hour virtual live retirement planning class for women starting May 13, 2021
www.RetirementPowerHours.com: 4 week, 6 hour virtual live and on-demand retirement planning classes. Next live class begins May 5.
Commitment #7: Get Guidance from a Retirement Planner/Advisor
One of the most valuable things you can do for your future retirement is to work with a Retirement Planner/Advisor who knows retirement inside and out, and can provide you guidance on a number of retirement optimized strategies. These strategies can make your savings & investments (and other assets like your home), more efficient and sustainable. And in many cases, if you have a gap between what you’ll have and what you’ll need, these strategies can close the gap (without saving more, working more, worrying more, or having to live with your kids!).
A Retirement Planner/Advisor can provide you with realistic expectations, savings goals and investment/portfolio advice to protect and grow your nest egg. Be open minded to the possibilities, understand your gaps and risks, and chat about your major concerns and how to address them. Having this guidance prior to retirement will help you feel more prepared, confident and in control of your future. And the right Retirement Planner/Advisor will provide value way above and beyond the fees they charge for their services. See our Guide to Finding an Advisor.
Are You Ready to Make a Commitment to Changing Your Retirement Outcome?
When it comes to your retirement, it’s important that you’re knowledgeable, confident and diligent in your prep and planning efforts. If you’re used to living a particular lifestyle and want to continue doing it once you are no longer working, planning ahead is critical. Conundrum solved. Continue on to retirement in peace and prosperity.
- Allianz Life Insurance Survey, 2010
- Are Millennials Saving Enough for Retirement? | John Hancock
This content is developed from sources believed to be providing accurate information and is for educational purposes only. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.