Are you behind on your retirement savings?Here’s how to catch up

Financial Planners

According to the 2022 Bankrate survey, more than half of working Americans say they are behind in saving for retirement. Meanwhile, 1 in 4 have no retirement savings at all.

Fifty-four percent of survey respondents blame inflation for their lack of retirement savings. Others cited factors such as new spending and stagnant or declining income.

Psychological factors can also interfere with future planning. One of the reasons people find it hard to sacrifice immediate gratification for long-term gain is that it’s hard to envision themselves in the distant future. Research shows that while it’s easy for us to connect with our “future selves” in a few months, when we envision ourselves decades from now, we tend to conceptualize ourselves as a complete stranger.

Combined with today’s economic environment, it’s no wonder that psychological idiosyncrasies like these are delaying retirement savings for so many. But no matter how difficult the current economic situation may seem, it’s never too late to move forward and get back on track. Here’s how:

How to get back on track

If you know your retirement plans are behind schedule, your gut instinct might be to ignore them and move on with your life. But accepting your situation will help you move on.

One way to get back on track is to review your monthly finances and analyze your spending. This approach helps you identify your spending behavior and potential areas where you can cut back to save additional cash.

Go through your bank statements and see the categories where you spend more than you should. For example, do you have subscriptions you pay for but don’t use? Could you simplify your grocery list by getting rid of things that rot in your fridge? It may be a step, but when combined, the savings are significant.

find the correct number

Increasing your contributions is good, but you need to know how much you’ll need in retirement and work towards that amount. That amount depends in part on how old you are, how old you want to be when you retire, and what kind of lifestyle you want to lead in retirement.

9 Julius Lau, retired financial planner at Fortunes, Inc., says it’s essential to consider personal circumstances when calculating the right numbers.

“It all depends on what you plan to do,” he says. “I like to take a holistic approach and figure out exactly what someone’s needs and desires are and develop a plan to solve the problem. Are they worried about their income? Are they? Are you worried that you won’t be able to continue your trip?”

Addressing personal issues is important when planning for retirement. Personal decisions affect your retirement benefits, so it’s important to keep track of everything during this process.

In 2021, the average retirement age in the United States was 65 for men and 62 for women, according to the Boston University Retirement Research Center. Although it is common to retire at this age, it is not a set rule. You can retire early or late. You must have sufficient funds in place to reach your desired retirement age.

How much money do you have enough?

One strategy for answering this question is the 4% rule, where you save enough money to live on 4% of your portfolio in your first year of retirement.

Eric M. Jaffe, CEO and founder of Mosaic Wealth Partners, said, “You can simply calculate your retirement, which will last you 30 years, by determining the cost of the lifestyle you want to maintain. I will.”

He recommends increasing this number to account for taxes, and then subtracting any sources of income you’ll receive after retirement.

“This will give you a rough figure of how much you will need to withdraw from your portfolio in your first year of retirement. I know what it should be.”

Jaffe also recommends factoring in inflation, as maintaining the same standard of living in retirement may cost more than it does now. You can use our free online retirement calculator to tweak the numbers and get a better idea of ​​what your financial future holds.

how much to donate

Once you know how much you need to save in total, you can turn it into a donation plan. If you’re trying to save $672,000 in total and you have 20 years to save it, that’s a total of 240 months. You need to set aside $2,800 each month. But only if you haven’t invested in a retirement vehicle like a 401(k).

It’s important to remember that retirement is a long game. In some cases, months, or even years, can result in losses instead of gains. However, over the long term, gains have historically outweighed losses by about 7%. It will be something called the annual rate of return on the amount you have saved so far in a given year.

Knowing how much you need in total is helpful, but it’s more important to start saving for retirement as soon as possible. If he can’t save $2,800 a month, save as much as he can. Get into the habit of saving a little at a time and working toward your target number. The Singleton Foundation provides great tools to help you set goals and see how your retirement savings will grow.

To keep your plans on track, set up automatic payments from your bank account for a set amount to ensure you donate every month. If you have a 401(k) or similar plan, your employer may also offer you the opportunity to save directly from your paycheck before the money is deposited in your bank account. Donate as much as you can without affecting your monthly expenses, making sure you cover your essentials before starting this route.

take advantage of free money

Employer matching is an initiative by your employer to match your contributions to your retirement account, up to a certain amount. Some employers offer 401(k) plans or similar retirement investment vehicles. Check what your employer is offering and donate up to the maximum allowed if possible.

The 401(k) maximum annual contribution is $22,500 in 2023, while the IRA maximum contribution for the same year is $6,500. If you are 50 or older, you can contribute an additional $1,000 annually to your IRA and an additional $7,500 to your 401(k) plan. If you are older and manage to donate this extra amount, it could help get you back on track.

Other important considerations

Debt can have a significant impact on your ability to save for retirement. If you don’t pay off your debt before you retire, it will be an ongoing expense that you should consider when building your portfolio to maintain your desired standard of living. If you are currently in debt, getting out of debt is a top priority.

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If you’re already using a high percentage of your income to pay off debt, measures to increase your retirement benefits won’t be as effective.

Another factor to consider is changing jobs if you have the means and resources. Making more money means more potential savings. However, it is important to ask questions such as: What are the costs of establishing a position in a new career and/or running a new career? How will all these factors affect your ability to save for retirement?

“If a new job raises income without increasing spending, it could help with retirement savings,” suggests Jaffe.

Similarly, if a new job or career offers perks such as generous retirement plans, better employer matching, better health insurance, or pensions, it will prove beneficial. There is a possibility.

No two strategies are the same for getting back on track toward healthy retirement savings. But there is one universal part to this plan. The trick is to start saving as soon as possible.

Consider getting help from a financial advisor if you’re having trouble getting a complete picture of your finances.

A financial advisor can help you assess your progress toward your goals and suggest improvements to your savings and investment strategies.

“Advisors can help you evaluate different types of retirement savings plans and decide which one is the best fit for your situation. For example, whether to choose an IRA or a Roth IRA,” says Jaffe. says Mr.

It is important to note that using a financial advisor is costly. Look for a paid financial her planner that charges a flat fee for services. You can also check to see if a local non-profit organization offers free financial services.

Hiring a financial advisor isn’t always necessary or feasible, but it can reduce the stress associated with financial planning and get you back on track for a healthy retirement portfolio. It might help.

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