A startling number of Americans are vastly underprepared for retirement. According to a report by the Government Accountability Office, around 48% of Americans aged 55 and older have no retirement savings in their 401(k)s or IRAs. That's almost half of the soon-to-be retirees without any financial nest egg!
In a time when retirement often spans decades, not years, this lack of preparedness can lead to significant financial strain. Regardless of where you are in your life’s journey, this underscores a universal truth: It's never too early or too late to get started on your retirement planning.
Retirement Planning Early Is Ideal
In a Transamerica Retirement Survey, nearly half of retirees said they waited too long to concern themselves with saving and investing for retirement.
For those in their 20s and 30s, retirement may feel like a far-off event. You might be focused on establishing your career, paying off student loans or starting a family.
While these are all essential pursuits, starting your retirement savings early offers unparalleled advantages:
Power of Compound Interest
The earlier you start, the more time your money has to grow. Compound interest is the eighth wonder of the world, as it allows your interest to earn its own interest, amplifying your savings significantly over time. The key takeaway: Saving early and often, and investing what you save, are some of the keys to a successful retirement due to the power of long-term compounding.
Automate Your Savings
A way to stay consistent with your retirement savings is by setting up automatic contributions to your 401(k) or other employer-sponsored retirement plan. This ensures that a part of your paycheck gets invested before you even see it. This “set it and forget it” strategy simplifies saving and reinforces a disciplined approach.
Risk and Reward
When you have time on your side, you can afford to allocate more of your portfolio to stocks or other higher-risk, higher-return investments. Over long periods, stocks have historically outperformed other asset classes, leading to potentially larger nest eggs for early savers.
As your salary grows, consider increasing your savings rate. Even a 1% increase in contributions can significantly boost your retirement savings over time.
But It's Never Too Late to Start Planning for Retirement
For those who are in their 40s, 50s, or even 60s and haven't yet put a plan into action, don’t worry!
While you might face different challenges, it’s not too late to start planning for retirement by following these essential guidelines:
Maximize Your Contributions
Most retirement accounts, like the 401(k) or IRA, have higher contribution limits for those over 50. This is known as “catch-up contributions” and allows you to save additional funds into these accounts, accelerating your savings rate.
Strategize Asset Handling
As retirement looms, it’s vital to plan for the distribution of your 401(k) or other assets. You have options like rolling over into an IRA, converting to a Roth or just planning regular withdrawals. Making informed decisions can minimize tax implications and maximize your financial security.
Reevaluate and Prioritize
As major loans get paid off or children become financially independent, direct the extra funds towards your retirement. For instance, if you used to spend $500/month on a child’s education, redirect that amount to your retirement fund.
Consider More Conservative Investments
As you near retirement, you may want to shift towards more stable investments, such as bonds or other fixed-income assets, that can help preserve capital while offering steady returns.
Harness the Power of a Health Savings Account (HSA)
As healthcare expenses often rise with age, an HSA offers a triple tax advantage – tax-deductible contributions, tax-free growth and tax-free withdrawals for qualified medical expenses. Additionally, after age 65, HSA funds can be withdrawn for any purpose without penalty, though non-medical withdrawals will be taxed as income. It’s a powerful tool not only for healthcare but also as a supplemental retirement savings vehicle.
Deciding when to file for Social Security is pivotal in optimizing your retirement benefits. While collecting early, from age 62, offers immediate funds, waiting until full retirement age or even delaying up to age 70 can significantly increase monthly payouts. However, the best choice varies based on personal factors such as health, financial needs, marital status and other income sources.
This article covers the pros and cons of claiming Social Security early vs. delayed.
Get Professional Guidance
Especially if you're beginning later in life, working with a financial adviser can help you create a retirement plan and navigate the best strategies tailored for your situation. Check out Advance Capital Management’s retirement planning services to learn more about how an adviser can help you.
And, whether you’re an avid retirement saver or procrastinator, download this helpful retirement planning guide. It’ll help you serve as a checklist of important retirement strategies.
Ready to master your retirement game, whether you’re ahead of the curve or just catching up? Dive into our essential retirement planning guide, packed with strategies to supercharge your journey. Don't miss out -- grab your copy here!
Benefits of Retirement Planning, Regardless of Age
Whether you’re 25 or 65, the act of planning and preparing for your future holds transformative power. In fact, research has shown that investors with written retirement plans are more confident than those with informal plans.
Let’s delve deeper into the myriad benefits that retirement planning offers, irrespective of age:
Peace of Mind
Perhaps the most invaluable benefit is the emotional security that planning brings. Knowing you have a strategy in place for the future can alleviate many of the anxieties tied to aging and financial stability.
Maintaining Your Lifestyle
Whether it’s traveling, dining out or pursuing hobbies, a retirement plan can help ensure you won’t have to compromise on the activities and luxuries you cherish.
A sound retirement plan gives you the flexibility to handle unexpected expenses. Whether it’s a medical emergency, helping a family member in need, or even indulging in a once-in-a-lifetime experience, you have the assurance that you can manage it without derailing your retirement.
Active Engagement with Finances
Individuals who actively plan for retirement tend to be more financially literate. They’re more aware of their spending habits, investment returns and tax implications. This active engagement often leads to better financial decisions throughout life, not just in retirement.
A Sense of Purpose
Planning for retirement often involves envisioning your life’s next chapter. Whether it’s picking up a new hobby, volunteering or traveling, defining these goals gives a renewed sense of purpose and excitement for the future.
Considering what’s at stake, retirement planning can still feel like a daunting task. But by breaking it down into manageable steps, you can better work toward a secure and fulfilling retirement.
Here are the key stages to focus on to help you begin designing your retirement roadmap:
Imagine Your Retirement
Before diving into numbers and spreadsheets, take a moment to reflect on what you truly desire from your retirement years. Do you envision tranquil days in a countryside cottage or vibrant adventures traveling the globe? Defining what retirement means to you, in vivid detail, helps tailor your financial strategies to those specific goals.
Know Your Investment Timeline
Your investment choices should align with your time horizon. If retirement is decades away, you might consider riskier assets with higher potential returns. Conversely, as retirement nears, a shift towards more stable, less volatile investments might be prudent. Periodically re-evaluate this timeline, especially after significant life events.
While self-reliance is commendable, the complexities of retirement planning often warrant expert advice. Financial advisers can provide insights tailored to your unique circumstances, risk tolerance and goals. Furthermore, they can introduce you to financial instruments and strategies you might not have considered on your own.
Planning for retirement is not just about stashing away money. It’s about securing your future, ensuring comfort and realizing dreams. Remember, every step, no matter how small, takes you closer to a fulfilling retirement. It's never too early to start, and it’s never too late to make a difference. Your future self will thank you!
Advance Capital Management is a fee-only RIA serving clients across the country. The Advance Capital Team includes financial advisers, investment managers, client service professionals and more -- all dedicated to helping people pursue their financial goals.