As inflation rates rise and the market grows increasingly volatile, older Americans are grappling with the possibility of prolonging their working years. The financial benchmark for a comfortable retirement has surged, with a recent study by Northwestern Mutual revealing that adults aged 18 and older now believe they need $1.27 million in savings to retire securely. The mentioned statistic signifies a growth compared to the estimated value of $1.25 million from the preceding year. Nevertheless, it raises an important question: how feasible is this objective? In the following piece, we will delve into strategies to bolster your retirement funds before it becomes a pressing concern.
Americans Fall Short on Saving
The truth is, regardless of their timelines, a significant number of working adults in the United States are not saving enough for retirement. As per a survey carried out by Prudential Financial, a remarkable 35% of individuals belonging to Generation X (those born between 1965 and 1980) have accumulated savings of less than $10,000, while an additional 18% have no savings whatsoever. These numbers are significantly lower than the recommended savings levels advised by financial experts, especially considering that this generation is approaching retirement age. Moreover, a significant proportion of the participants, nearly 47%, anticipate retiring at a later time than their original plan, and out of those, 40% contemplate engaging in part-time employment even after reaching retirement age. Nevertheless, with careful planning, persistence, and the possibility of savings catch-up, a comfortable retirement is still within reach. Notably, individuals who identified as disciplined financial planners managed to lower their retirement age by two years, with the average age of retirement reduced to 63, as indicated by the Northwestern Mutual study.
Assess Your Retirement Needs
Begin by taking some time to estimate how much you will require for retirement. While the commonly advised starting point is 80% of your current annual income, the actual figure will depend on various factors. Consider your anticipated post-work life: Do you plan on frequent travel? Will you seek part-time employment for personal fulfillment? Are you interested in leaving an inheritance for your loved ones? Afterward, evaluate your existing assets, including savings accounts, 401(k) balances, Roth IRA contributions, and any outstanding debts.
Develop a Solid Plan
Becoming a financial expert is unnecessary for taking control of your retirement plans. This is where a certified financial adviser can be invaluable. These professionals might advise you to prioritize paying yourself first, and one efficient way to achieve this is through automated, tax-friendly investment vehicles like a 401(k) account. Leveraging employer matches can significantly enhance the growth of your savings. If a 401(k) plan is unavailable, consider setting up automated bank transfers into a Roth IRA, which ensures your money is invested before it can be spent on less important expenses. Act as your own advocate and engage with your employer’s 401(k) plan administrator, inquiring about options that align with your retirement timeline and investment risk tolerance. The latter is particularly crucial since individuals with more than ten years remaining in their careers might be more inclined to invest in aggressive funds, capitalizing on long-term market recoveries, while those nearing retirement may lean toward more conservative holdings. Additionally, exploring online banks could prove advantageous, as some offer savings accounts with returns exceeding 2.5%, far surpassing the rates provided by traditional brick-and-mortar banks.
Maximize Your Savings
If you find yourself able to cover your monthly expenses, pay down debts, and still have surplus funds, consider maximizing your savings plans. Currently, the upper limit for individual contributions permitted in 401(k) accounts stands at $22,500, while the contribution caps for IRAs are being raised to $6,500. For individuals who are 50 years old and above, there exists a valuable opportunity to make supplementary “catch-up” contributions to retirement plans such as 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan, subject to a maximum limit of $7,500. Although attaining these maximum amounts may present a challenge, striving to come as close as possible will establish a favorable foundation for a financially stable retirement when the time comes.
Achieving a comfortable retirement may seem daunting, but with careful planning and disciplined financial habits, it remains within reach for Americans. Despite the increased financial benchmark of $1.27 million, individuals can take steps to bolster their retirement savings. By acknowledging the reality that many Americans are not saving enough, assessing personal retirement needs, developing a sound financial plan with the guidance of an expert, and maximizing available savings plans, individuals can inch closer to their retirement goals. Start taking action today to secure your financial future and enjoy your golden years without unnecessary financial worries.