We know that life happens, and lifestyle expectations change as you get older. Paying off loans, starting a family, focusing on credit card debt, getting a divorce — these events all have the ability to derail retirement planning and saving. It can be difficult to focus on the future when you have many more immediate concerns putting pressure on your income.
It’s true that the sooner you begin saving, the better position you’ll likely be in for retirement. When you get to your 40s and 50s and realize you probably haven’t saved near enough for your retirement, it can seem daunting, and it’s easy to get discouraged. But whether you’re 20 years old or 50, it’s never too late to start saving.
That’s why we’re sharing four tips to get you back on track.
1. Get organized
It’s no longer the norm for a person to stay at one company their entire career. People now spend an average of four years at a company and will switch jobs around 12 times during their life. If they’re in their 40s or 50s, this makes it much more likely that they have more than one retirement account out there.
Do you know how many 401(k)s, IRAs or other retirement accounts you have?
Take inventory of your retirement assets and determine the best way to manage those accounts. Sometimes it’s consolidating accounts into your current 401(k) or into an IRA. Sometimes a previous employer has a low-cost 401(k) plan and it makes more sense to keep those funds in that account until your retirement.
What’s most important is that you’re aware of all the accounts you have and how they fit into your overall financial picture.
2. Visualize your retirement
Everyone has a different ideal retirement — and this can change as you grow in your career and adapt to a different type of lifestyle. Some people want to travel abroad for extended periods, while others might want to spend time with family and friends at home.
How much money you’ll need to fund your retirement depends on what your ideal retirement looks like. Knowing what’s important to you and what your goals are is essential to creating a plan to get you on track for that ideal retirement. What are your potential limitations? How aggressive might you need to be in investing? By how much should you increase your savings each year? Answering these questions depends knowing where you are now and what you want to accomplish in retirement.
3. Balance debt and saving
For those paying off credit cards, loans or a mortgage, it probably feels like you don’t have the funds to put away for retirement. But it’s critical to “pay yourself” first.
Set a budget that allocates some portion of your income to retirement. A good starting point is to contribute the same amount to your 401(k) as your employer will match (often 3-6%) and then increase your contribution over time. If you’re putting in 4% and your employer matches it, that’s 8% total, and that’s a great start. Don’t forget to reevaluate your contributions each year. The elections you made early in your career may no longer set you up for the retired life that you now want.
You should also plan which debt you should target first. Credit cards and high-interest loans should be paid off before lower-interest loans like mortgages. And, because some debts would burden your family if you were to pass away unexpectedly, be sure you are adequately insured.
You can also look into loan forgiveness programs if student loans are burdening you and you work in an applicable profession. We put together information in a three-part blog series on Public Service Loan Forgiveness, loan forgiveness for medical professionals and loan forgiveness for teachers.
If you’re in a better position to contribute more of your income to your 401(k), it’s good to know IRS limits. For 2020, you’re allowed to contribute $19,500 to your 401(k) account, and if you’re over 50, you can contribute an additional $6,500 as a catch-up contribution.
Those who weren’t able to contribute much in to retirement in their 20s and 30s but are now in a better position income-wise should take advantage of those IRS limits. The more you put into your 401(k), the more it is likely to grow over time. Even if you are later in your working career and you have less time to let it grow, by putting more money in, that money has more chances to compound and raise your chances of success.
4. Work with a financial planner
There’s a lot to take into account when it comes to retirement planning, so enlisting the help of a financial planner can also increase your chances of success. They can help you create a roadmap that includes a savings plan, investment strategy and how to navigate potential pitfalls (such as what to do if there’s a death in the family, if you become disabled or if you must take early distributions from your retirement accounts).
Studies show you’ll need to replace 70-85% of your current income in retirement, meaning that 10-20% of your income should go to some sort of savings vehicle every year. Ideally that is a combination of an emergency fund, a 401(k) or IRA, health savings account, and brokerage account. Working with a financial planner can help you determine the best allocations for your saving strategy.
How to save for retirement
The most important idea is that it’s never too late to start saving, but knowing the most strategic way to do so will help you meet your retirement goals.
To take a look at your current situation and start planning, contact an advisor at Wipfli Financial.
You can also continue reading on in these blogs:
Does divorce derail retirement?
Health Savings Accounts: An overlooked way to save for retirement?
Why you need to save for retirement now no matter how hard it is
What money questions to consider when deciding where to retire