A recent study from The Guardian Life Insurance Company of America states that one in three Americans may have to delay retirement due to lack of planning. For those who haven’t made retirement savings a priority, this news may be disconcerting. But hope is not lost. No matter how much or how little future retirees have saved, it’s never too late to plan and build a retirement fund.
Meeting with an insurance adviser or financial planner can help individuals make sound plans for the future. Advisers help clients assess their finances and create a retirement fund roadmap for 2017 and beyond.
For those ready to take action, here are five things consumers can do to kick off their retirement savings.
- Follow the money.
It’s important to take a hard look at current spending habits. Analyzing what money is being spent on helps in deciding what can be cut from the budget to use towards retirement savings instead. Those serious about maximizing their retirement fund need to reconsider splurging on items that are wants more than needs. A new, long-term budget with a plan for debt repayment and saving for retirement must be implemented and followed immediately.
- Review the current retirement income amount.
Taking a look at what income will be available at retirement now is helpful in determining any income gaps or retirement shortfalls. Review all 401(k)s, individual retirement accounts (IRAs) or other income-producing assets. Looking back at previous jobs may uncover pension eligibility or money in a previous employer 401(k) or 403(b).
Other retirement income to review includes the Social Security benefit, brokerage accounts and defined contribution plans. Once the monthly income amount is determined, the individual should estimate the approximate tax amount. Reviewing what is currently available offers a good picture of the retirement income generated from these sources after tax each month during retirement.
Comparing the after-tax monthly total to predicted retirement expenses will reveal the “income gap” or amount needed to cover monthly living expenses. This gap number helps target the amount of retirement savings needed in order to ramp up the retirement fund.
- Start saving today.
Once a budget is created and unnecessary expenses cut, it’s vital to start saving, starting today. Plan for an automatic monthly contribution towards a retirement fund. Time is the key to maximize a retirement fund. A small, monthly amount is better than waiting for the opportunity to contribute a larger sum. A monthly contribution can always be increased over time as the automatic contribution becomes second nature.
- Maximize catch-up contributions.
50-or-older savers can make higher “catch-up contributions” to select retirement accounts like traditional or Roth IRAs, 401(k) plans, and 403(b) plans. For 2017, catch-up contributions are up to $1,000 for IRAs and $6,000 for 401(k)s.
- Rebalance the investment portfolio.
As the retirement target date gets closer, it’s time to revisit the asset allocation strategy. An investment portfolio should include a mix of stocks, bonds and other investments like insurance and annuities.
Investment classes grow at different rates of return. It’s best to sit with a planner to determine what needs a rebalance and what is performing well. Asset classes with high degrees of risk tend to have higher rates of return and are a good choice in the beginning, but as retirement age looms closer, it’s best to phase out of such volatility and focus on safer investments with slower, steadier growth.
Those with an eye on their retirement future should stop worrying about not doing enough yesterday and focus on today. Reviewing what assets and income will be available at retirement, determining how much is needed and creating an aggressive savings plan to cover the gap will help prepare a potential retiree for an earlier, stress-free retirement date.