To find out if you’re on course for your retirement, you need to create a financial plan to measure how your retirement savings stack up.
Retirement isn’t a destination that should be taken lightly. Arriving there without the proper planning often leads to disastrous results. So how do you know if you’re on track?
Many financial advisors recommend the magic number you should have saved for retirement is $1 million — but you may actually need much more. Alarmingly, a recent survey conducted by Clever found that, on average, retirees have just $170,726 saved for retirement. And a huge 48% of retirees believe they’ll outlive their savings entirely — which is not too surprising given how little many have saved for retirement.
To determine whether you’re on track for retirement, it helps to know how and where you want to spend your golden years. A financial plan can give you a clear idea of which areas you’re already hitting your goals in and which ones you need to focus on more.
Assess Your Goals
Setting goals can help you determine the best way to use your time and resources when you retire. What’s more, setting retirement goals will give you a better understanding of how much disposable income you’ll need to achieve them.
Some common retirement goals include:
- Moving home/state/country.
- Plan a milestone event.
- Prioritize wellness.
- Discover new interests.
- Leave a legacy.
After listing your goals, you can then work on making a plan to financially reach them.
Assess Your Financial Situation
Once you know how you want to spend your retirement, it’s time to figure out whether you’ll be able to comfortably afford the lifestyle you want. The first step in determining this is to make a budget and see if your savings are on track.
When it comes to saving for retirement, the rule of thumb has typically been to save between 10% and 20% of your salary each year. Another general rule suggests you’ll need about 80% of your pre-retirement income to maintain your lifestyle in retirement. The correct savings rate for you, however, depends on your income, risk tolerance and personal circumstances.
After establishing your budget, you need to check your current savings rate allows you to meet your retirement needs. If your projected income exceeds your projected expenses, you’re usually on the right track.
The Three A’s of Saving
If you notice you’re behind on your savings strategy, don’t panic. To help navigate the often-overwhelming world of saving and investing, it helps to break down each phase into three tangible steps: The 3 A’s:
How much of your pre-tax income you can save annually.
Factor in your other sources of retirement income, such as Social Security benefits, employer pensions, investment and retirement accounts such as 401(k)s and IRAs and any part-time employment earnings .
The higher the percentage of your retirement savings in stocks, historically speaking, the higher your portfolio’s rate of return will be.
Focus on what you can do to help get back up to speed.
Factor in Healthcare Costs
When planning for retirement, it is essential to consider healthcare expenses. The cost of healthcare has steadily increased over the years. The average retired couple age 65 will need over $315,000 (after taxes) for healthcare expenses alone. The true amount will undoubtedly vary because everyone’s health situation is different, but healthcare in retirement won’t be cheap for most people.
For individuals aged 65 or older, Medicare is available as an option. However, Medicare has its limitations (for example it does not cover long-term care) so it may be useful to consider getting supplementary health insurance coverage to improve the benefits beyond Medicare. This can help to manage healthcare costs and provide additional coverage for retirees.
The healthcare cost per person covered by a policy is set according to their age, with rates increasing as the individual gets older. The average monthly premiums for a Bronze Affordable Care Act (ACA) health insurance plan is $928. The average monthly costs increase to $1,217 for a Silver plan and $1,336 for a Gold plan. Those averages don’t take into account premium tax credits and subsidies that can reduce costs for an ACA plan based on household income. Even with healthy habits, healthcare costs remain an uncontrollable monthly expense for many retirees.
Health savings accounts (HSAs) are one of the best ways to save for medical expenses. This type of account allows you to contribute money on a pre-tax basis, meaning that your contributions can grow tax-free until you use them to pay for qualified healthcare expenses.
Hiring an Experienced Financial Advisor
Planning for retirement can be a source of worry and frustration—especially as you creep closer to middle age and retirement. Even with investments in place and ongoing 401(k) contributions, you may fear that you’re not on track for retirement. An experienced financial advisor can help you create a financial plan, properly prepare your finances and help you know when the right time is for you to retire.
By utilizing the services of an experienced advisor, you can create a plan that considers your current financial obligations while prioritizing your retirement savings.
Realizing you are not on track with your retirement savings often means you need to take action – especially if you are close to retiring. Depending on your circumstances, this could be as simple as adjusting your budget to contribute more consistently to your retirement plan. By enlisting the ongoing help of a financial advisor, you’ll have the accountability and guidance you need to stay on track (and make adjustments where needed).
At APO Financial, our Colorado and Florida-based Fiduciary advisors are here to help you manage your financial future and help you achieve your retirement goals. As Fiduciaries, we put each client’s needs at the forefront of all we do.
Ready to get started? Contact us here today to schedule a meeting that is most convenient and comfortable for you, whether it’s in person, virtually or by phone. We look forward to speaking with you.
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