Retirement Readiness: Preparing for Our Retirement Dream

Many of us struggle with our retirement planning.  Am I saving enough? How should I be invested? How much will I need in retirement?  Or, perhaps you fall into the camp where I know I need to save more, but I really cannot afford to plan for retirement.  These are all too common dilemmas we face in trying to plan for our own version of our retirement dream.  How far out from retirement you are can have a big impact on your retirement readiness and what steps you can take to try to right the ship if you will.  While there is no one quick fix or simple solution to preparing for a successful retirement here are a few tips to help along the way.

Am I saving enough?

If you are anything like most of us the answer is likely no.  We can always be doing more.  Trying to maximize your contribution limits can be a daunting figure for most.  Start with something that is comfortable for your budget.  Do you know what your employer is contributing as an employer match?  We’d recommend maxing out your employer-match maximum to start with and consider increasing at least 1% each year.  You would be surprised how much that additional 1% increase in savings year over year compounds over time.  That slight decrease in your take-home pay will only have a nominal impact on your budget if you are able to adjust over time.  Set aggressive savings goals for yourself, but make sure they are reasonable for your situation so you are not tempted to go back in and stop contributing.

How should I be invested?

Unfortunately here, there is no one size fits all answer.  Each individual’s risk tolerance is unique to them.  For those who wish to leave it to the investment professionals, select one of the asset allocation products that provide a balanced and diversified portfolio (e.g. age-based funds within your plan) or perhaps consider consulting with a financial advisor to review your individual situation.  Keep in mind that you need to understand how much risk you’re really willing to take.  You cannot invest your way out of not saving enough.

How much do I need in retirement?

This is the million dollar question.  We all worry about the future outlook of where we will be in our late 60s or early 70s.  Rising healthcare costs, inflation, and market performance all can eat away at our precious savings.  The general school of thought is that you will likely need to replace 70-80% of your current income in retirement. What does that really mean in simple terms?  Between your retirement savings, pension benefits, investment property income, and social security, you should be able to generate an average 70-80% of what you have become accustomed to living on.  This figure could be more or less depending on your spending habits or future plans while in retirement.  Some professionals suggest the rule of thumb be that you set your goal to target 10x your earnings in retirement.

You are your best advocate when it comes to preparing for and planning a successful retirement.  Saving early and often is the best solution as time affords the benefit of compounding.  Older generations have been able to rely solely on pension payments and social security, but as fewer companies are offering pensions and concerns around the sustainability of social security rise, it’s more important than ever for participants to take hold of their retirement future.

Angela Lester-Morrow is an Investment Analyst with BPAS Fiduciary Services.