Twenty-five percent of working Americans have no retirement savings or pension, according to he most recent Report on the Economic Well-Being of U.S. Households from the Board of Governors of the Federal Reserve. Even of those over age 60, 13% don’t have retirement savings or a pension coming to them. (Not a typo.) It’s not just a problem for the Boomers: 26% of Americans aged 30 to 44 don’t have retirement savings, either. And the same report also shows that only 22% of Americans 18 to 44 think they’re on track with their retirement savings. Whatever your retirement objectives are, not having a plan is probably not a good way to reach them.
It’s a bleak picture, to be sure. But when reality hits hard, motivation can follow. And no one wants retirement to just become one of those things that our parents and grandparents used to enjoy, back in the day.
On average, Americans spend around 20 years in retirement. If you earn $75,000 a year when you retire and want to keep the same salary, you’ll need a total of $1.5 million squirreled away.
This is the part where many people might utter the word “impossible.” But if you start saving for retirement now, and make your retirement contributions just as mandatory as your electric bill, that number can start to look a little less intimidating and you can feel that there’s hope you’ll meet that retirement goal.
In fact, just using a retirement calculator can put you in a better position than many Americans — fewer than half of them have done the math. And once you have your own enormous number, it can get easier to break it down into smaller, more attainable goals along the way.
To be sure, though, the road to retirement is paved with homework and sacrifice. It’s estimated people need 70% to 90% of their pre-retirement income to maintain the same standard of living after they stop working – so that’s a typical retirement objective.
So perhaps more than any other financial decision you’ll make, reaching personal retirement goals takes diligence, preparation, planning for the “what if’s”, and lots of willpower.
It may seem overwhelming, but it can help to start by determining your retirement objectives. Then you can find your own personal way to crush them. Everyone’s financial situation is different, and this plan is not the only solution out there, but here is one possible way you might go about determining your goals:
Step 1: Assess your current situation.
One step you can take to determine your future goals is to get a solid picture of your present — somewhat like a personal audit. A careful inventory of your current expenses, income, taxes, and savings can give you an honest picture of where you are, as well as a realistic look at where your money is going each month.
Once you’ve determined your day-to-day financial picture, you can create a list of any current retirement savings you already have, such as 401(k) accounts, IRAs, or high-yield savings accounts. Total up that number, because you’ll be able to subtract it from your goal.
Step 2. Play around with a retirement calculator.
A retirement calculator can help you figure out your overall 20-year lump sum goal by working with variables such as your current age, salary, and savings, your desired retirement age, and how much you save per year.
Here’s where you can change up the numbers and consider several scenarios. If you were to retire at 67, for example, how much money would you need? What would happen if you were able to up your yearly savings by just 3%? You might even calculate the amount of money you’d need to save to retire early.
Step 3. Digest your enormous number.
Take a deep breath. Then plan on.
Step 4. Break it down.
One possibly helpful way to tackle anything large is to break it down into digestible chunks. To do this, you could subtract your current age from your intended retirement age, then divide that number by the total. That’s your yearly goal. If it’s still overwhelming, you might divide that number by 12 for your monthly goal. Go as far as you need to make it palatable — those “for as little as 3 dollars a day” commercials make it sound easy, right?
For example, if your total number is $800,000 and you’re 30 years from retirement, that breaks down to around $75 a day. But that doesn’t mean you have to put that much into the bank by yourself. A next step you could take is finding the retirement savings plans that will do the most to grow your money.
Step 5. Choose the best retirement plan(s) for you
With the drastic decline in the traditional, company-provided pension and the uncertain future of Social Security, a number of different individual retirement savings plans, each with specific benefits, have stepped in to take their place.
If your employer offers a 401(k) matching plan, one of the easiest ways to grow your retirement nest egg is to contribute the max amount of money each paycheck that your employer is willing to match.
The contributions are automatically deducted from your paycheck pre-tax, and since you never see the money, it can be much easier to just pretend like it was never there to begin with.
For the self-employed, or for diversification, traditional or Roth IRAs are also specifically designed to help your savings grow.
The biggest advantages of 401(k) and IRA plans are their potential tax savings. However, they can come with yearly contribution limits that may not mesh with your retirement objectives.
In this case, a general investment account is another possible consideration for growing your wealth. While it likely doesn’t come with tax advantages, it doesn’t come with contribution limits, either.
If investing in the market leaves you feeling wary, or you don’t like the idea of not having access to your money until you reach a certain age, another option to consider is a high-yield savings account.
It’s a cash-based account that has as much flexibility as a regular checking or savings account, but instead of the paltry 0.04% interest offered by some traditional banks, your money can potentially earn as much as 0.57.
Step 6. Stick to your goals
You’ve calculated your retirement goal. You’ve determined a plan to reach it. And now it’s time for arguably the hardest part — sticking to the plan.
For as many investment or retirement accounts as possible, you might consider setting up automatic contributions to withdraw every payday. The more you can automate, the less you’ll be tempted to move things around.
One move you may want to consider, however, is rolling over funds from an old 401(k) to a rollover IRA, so you can better manage your retirement savings overall.
SoFi makes the rollover process seamless and simple — no need to watch the mail for your 401(k) check. There are no rollover fees or taxes, and you can complete your 401(k) rollover quickly and easily.
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