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Retirement is a topic that impacts everyone, no matter their age. Still, depending on how old you are, you might think retirement is either too far away to worry about, or too close to do anything about at this point. The truth is that it’s never too late — or too early — to start putting money away to ensure your financial future. Unfortunately, five in 10 people are still living paycheck to paycheck, and are not putting away enough funds to adequately prepare themselves for retirement in the future, or emergencies in the present, while 30 percent of people with a defined contribution retirement plan have already dipped into it for non-retirement reasons, according to a MetLife study. When it comes to saving for retirement, knowing where to start can be daunting, but answering a few strategic questions at different ages can help you home in on what actions you should be taking right now to shore up your funds.
Not putting at least the minimum amount into an employer-sponsored retirement plan to earn the match is like leaving free money on the table.
Many new graduates have to juggle multiple financial obligations, including student loans, rent, food, entertainment, transportation needs, etc. Make a monthly budget, so that you can properly factor in retirement savings while covering all your bases.
If your expenses are low, it can be tempting to use extra money on entertainment, travel, or other fun things. But it’s important to prioritize saving, too: the earlier and the more funds you can put away in retirement the better, because your money has more time to grow. Be sure to also keep cash readily available in an emergency fund for any surprises that might pop up — experts recommend three to six months of expenses.
A lot of your daily financial decisions — like paying your credit card bill on time, how much debt you have and how many credit cards you have open — can impact your credit score, and your credit score is important for a number of reasons. People with scores in the excellent and good range are more likely to get better interest rates on loans and have access to more credit products, among other things. Finding out what your credit score is should always be free — most banks offer this service these days, or online sites like Credit Karma can help.
Emergencies can crop up at any time, and an expensive hospital or home repair bill can seriously set someone back from other financial goals, like retirement savings. During your 30s, when you’re hopefully making a bit more in your career, is a great time to focus on keeping this account full. (Again, experts recommend keeping enough money to cover expenses worth at least three to six months.) Especially if you’re planning to have a family in the future, being covered in the case of an emergency is essential.
Would you like to travel the world, spend half the year at your flat in London, or get a simple apartment close to your kids and grandkids? Other lifestyle choices — like entertaining and nights out — all factor into how much you might need, as well.
Your retirement planning may or may not include your estate plan, including any money you want to leave for kids or grandkids. If you have a family of your own now — or know you would like one — it’s a good time to factor that into your retirement plans, as well, and check in on your estate plan yearly to ensure it still meets all of your needs. Also make sure you protect yourself in the present with adequate life and disability insurance policies, especially if you have a family.
If you’ve recently paid off some debts, like your student loans, or your kids are in college and you’re no longer saving for that goal, consider reallocating that money into retirement instead. If, however, you are still saving money in a fund for your child for college, make sure you aren’t saving for that goal at the expense of others, like your retirement. In other words: always continue to save for retirement, and never take money out of your 401(k) to fund your child’s education.
If you’re already meeting the match with any employer-sponsored plans, opening a supplementary retirement account — like an IRA — can help you stow away even more. You can also consider at this point how you are investing. If you’re too conservative with your retirement account, you won’t be able to fully reap the benefits of compound interest.
According to a Bureau of Labor Statistics report, baby boomers held an average 12.3 jobs from ages 18 to 52. By the time you’re in your 40s, you may be settled into your current career or looking for a change in direction.
While people decide to change jobs for many reasons — including higher pay, better benefits, better work-life blend or to find a more fulfilling outlet — it’s important to consider what a move might mean in terms of your financial goals.
For example, you’ll want to understand what would happen with your current work-sponsored retirement account if you were to leave, whether or not you could be leaving a pension or stock options on the table, and what a potential decrease in salary could mean for your future goals.
Catch-up contributions allow you to contribute even more to certain retirement plans — like IRAs — when you are 50 or older. Make sure you’re saving the maximum amount to reap the maximum rewards.
During your 50s is a good time to reevaluate the retirement intentions you set back when you were younger. Have your plans changed at all, and if so, how does that impact your retirement goals? Remember, it’s important to not prioritize spending on your children — like for college — over your retirement goals.
At this stage it’s also very important to have a will and estate plan. Even with beneficiaries on your accounts, an estate plan that is properly executed is really the only way to ensure your assets go where you want them to when you are no longer around.
Healthcare costs can take a big chunk out of your retirement savings, even if you’re healthy, so it’s important to factor that in. A report from HealthView Services Financial found that a 65-year-old couple retiring in 2019 should plan to spend $387,000 for retirement healthcare costs (and that's not including long-term care).
Depending on when you were planning to retire, you’ll need to check in with your current retirement funds to see if that’s a possibility, or if you need to save up a bit more before doing so. Since these are likely your highest-earning years, it also makes sense to ramp up your savings in general, especially with no competing priorities. It’s also a smart idea to consider downsizing any debt you do have, like moving to a smaller home, if necessary.
If your funds are still short, you might need to consider extending your retirement age, picking up a side job to pad your monthly retirement savings contributions or including some form of part-time work into your retirement years. Recheck your asset allocations at this point again to make sure you’re saving to your maximum benefit.
If retiring on time is important to you, perhaps there are some budgetary or lifestyle changes you can enact to help make that happen. For example, downsizing your home is a good way to potentially spend less every month on housing.
It’s also essential to make paying down debt a priority before retirement, if you haven’t already. In doing so, the money you have saved for retirement can be used entirely to fund your lifestyle, rather than paying down debts, as well.
There are various avenues for collecting money during retirement — including your retirement accounts, social security and Medicare — so it’s important to consider the positives and drawbacks of each. For example, taking all of your retirement account money as a lump sum – or proverbial “pot of gold” – may be tempting, but MetLife research has highlighted that many individuals who take lump sums from their retirement plans have depleted their money too quickly relative to their life expectancy. This potentially leaves them to fund a significant portion of their retirement years with no income other than Social Security.
Rather than taking a lump sum, a guaranteed stream of income makes planning and budgeting easier, and helps avoid the risk of overspending or underspending in retirement. You should also consider your investment skills, and how these may change as you get older and experience potential declines in cognition. Partial annuitization can provide the best of both worlds: liquidity for today and guaranteed income for the future. A financial advisor can help walk you through the best course of action based on your specific needs.
Taking control of your personal financial health means keeping a well-rounded view of your money into the future, no matter your age or financial situation.
Nothing in these materials is intended to be advice for a particular situation or individual. These materials are for general information purposes only.