Have you ever planned a party or event, and then found the actual party cost far more than you thought it would? Well, planning for retirement is a lot like that. The safest retirement road to take is the one that reads, “costs more than you think.”
There is a common idea that you will only need 80% of your current income in retirement. Really? Unless you have your house paid off, about the only reduced expenses you will have come from no commute or wardrobe expense.
What about the cost of doing fun things that you have put off until retirement? Travel, family outings, hobbies, golf. Having fun is not cheap. And except for possibly HD TVs, when was the last time you saw the price of anything go down?
But if you look down the road to retirement and are worried that you’ll never have enough, don’t panic. There is still plenty you can do to get your retirement plan on track.
Saving more now means more peace of mind down the road.
Whether it is in an IRA, a 401K, or a jar, put as much as you possibly can aside for the future. Some of the best retirement advice I ever heard was “decide to be a little poor now, rather than really poor later.”
That may sound a little drastic, but is doing without a few splurges really going to impact your life. Instead sock the cash away, and feel the reward that comes from watching your savings grow.
One might think that the weak world economy has made savings almost impossible. But Fidelity Investments reported in their April 2013 Fidelity Viewpoints that “savers are taking control.” In a recent survey of Fidelity investors, 56% said they had increased their savings and decreased their debts since the financial downturn began. The result? They say they have gone from being “scared or confused” to being “prepared or confident.”
Even if your earlier savings have dwindled from a job loss or investment losses, every dollar you save today is valuable, because it gives control of your money back to you.
Take full advantage of 401K matching funds.
If your employer offers a 401K with matching funds, at least contribute to the amount they will match. Otherwise you are just walking away from free money. If your 401K is set up with diversified funds, it is an excellent place to increase your savings, because the tax advantages allow your savings to grow faster. If your employer’s stock is the only investment option, then you might want to diversify elsewhere once you have reached the matching contribution level. That way, you avoid putting too much of your savings in one place.
There is no cliff you have to jump off when you turn 65.
Since the advent of Social Security a myth has grown up in the U.S. that your working life has to end at 65, or before. Now if retiring from your current job is your biggest goal, then go ahead. But if you love your work, there is no law out there in the cosmos that says you have to stop doing it.
If you want to retire, but are afraid you won’t have enough cash, then consider things you love to do that you could get paid for. Or you could even start a new career, following a dream you let slide along the way.
For help letting go of the “I’m almost 65 and I don’t have nearly enough” fears, read the excellent book Die Broke by Stephen Pollen and Mark Levine. The book also offers advice about how to spend your savings wisely in your retirement years.
Build an emergency fund, separate from your retirement savings.
If you don’t already have a rainy day fund, start one as soon as you can. Unexpected emergencies can happen to anyone, at any time, and have forced people deeply into debt if they have to use credit cards to cover a crisis. Credit card interest simply saps money away that could be saved for your retirement future.
Consider adding some guaranteed income investments to your portfolio.
Fidelity Viewpoints suggests supplementing Social Security with annuities or other guaranteed income assets, to assure you have enough cash for routine expenses. Then a portion of your retirement funds will be protected from drops in interest rates or market fluctuations.
How much is enough?
The Social Security Administration has an online planning tool at www.ssa.gov, and almost every brokerage house has some sort of retirement calculator. Try multiple sites, and see what sort of different outcomes you get, or different strategies they suggest.
If conditions force you to start taking reduced Social Security before you reach your full retirement age, you can still work a certain amount before losing any benefits. Many people don’t know that if you work enough to stop receiving benefits for a while, the SSA applies your earnings back to your benefits, so you may get a larger benefit check when you reach your full retirement age. Check the SSA website for dollar amounts and details.
Get some face to face expert advice.
You may be perfectly comfortable with a DIY retirement roadmap. But it never hurts to get a second point of view. If you decide to visit a financial advisor, shop around and get some recommendations. Find someone who is not out to sell you anything. And you may want someone who specializes in retirement planning. They can answer many of your questions, and be a resource for you for years.
Do your research.
You don’t have to know a thing about those charts and graphs on the online investment ads. Just go to your local library and look for books by financial experts like Dave Ramsey, Suze Orman, Jane Bryant Quinn, and others. Your librarian can lead you to shelves of advice, all for free. Follow their counsel and you’ll be on your way to a more secure retirement, no matter where you are today.