7 Tips to Successfully Save for Retirement
The question of the hour in financial circles: Is there a retirement crisis in America today?
In the United States, fewer than one-fifth of Americans over the age of 50 have saved enough for retirement. This is a grim statistic from senior living resource Caring Advisor, highlighting the growing threat of a retirement crisis. Unfortunately, this reality isn’t confined to the U.S., with many other places worldwide – from Switzerland to Canada – worried for the financial health of their aging population.
The coronavirus pandemic significantly damaged the financial well-being of millions of Americans. Studies have found that it could take years for these individuals to recover from the COVID-19 public health disaster. But as they begin their road to recovery, how can they simultaneously improve their financial future…namely, their retirement?
To get you started, we have compiled a list of the best tips for successfully saving for retirement:
1. Calculate What You Need for Retirement
A recent Department of Labor report suggested that only 40 percent of Americans have calculated what they need for retirement. It also noted that 30 percent of private-sector workers did not participate in their 401(k) plans. These are concerning statistics when retirement can always feel like it is around the corner. The first step is a simple one: calculate what you need for retirement.
Some people may be put off by this recommendation, thinking that they need to have the figures drilled down to the decimal. But this is not what is important. Instead, it would help if you had a rough estimate of what your retirement lifestyle will be like. Typically, you need to factor in the basics – shelter, food, health care, medicine, and transportation – and then estimate anything beyond.
This way you can create measurable goals, set aside money accordingly, and ensure that you are meeting those basic future needs.
2. Enroll in an Automatic Savings Program
One of the most effective tactics to implement in your broader retirement strategy is enrolling in an automatic savings program. This plan consists of automatically transferring money from your checking into your savings account. You pick the amount, date, and frequency. That is all you need to do.
It might not seem like much at first, but it is critical to, at the very least, plant some seed money.
3. Start Investing in the Stock Market
Let’s face it: the ultra-low interest rate environment today will not be enough to generate a comfortable nest egg. It would be best if you were proactive with your capital, and this begins by dipping your toe in the stock market. Your risk tolerance may be low, but there are plenty of options and strategies available to ensure you can generate better returns on your investment without fear of losing the farm.
Unsure where to begin? Here are some tips to get your money working harder for you:
- Invest in index funds that mirror the composition and performance of an index through an exchange-traded fund (ETF) or mutual fund.
- Purchase dividend-paying stocks that have been around for many years.
- Maintain a diversified portfolio of U.S. and foreign stocks, bonds, bullion, and cash.
- Dollar-cost average (DCA) down the main stocks you are invested in to smooth your purchase price.
- Consider robo-advisors to automate your investment journey further.
Whatever strategy you institute or stock you pick, investing is a must-do for your retirement planning. With the low interest rate environment predicted to continue for a prolonged period, investments need to happen in order to reach your retirement targets.
4. Upgrade Your Account
Once you were old enough to understand the value of a dollar, you went to the neighborhood bank and opened your first checking account. Since then, you have used this financial institution as your primary source for all your banking needs. But while the familiarity and comfort may be intriguing, your money lying dormant is not the best mechanism for growth.
The solution is to upgrade to a better account, for your checking, savings, and investing needs. Some options to explore include an all-in-one checking and investment account, a high-interest savings account, or a mobile-based hub.
Whatever you choose, upgrading your account can help your money do some of the leg work and grow.
5. Launch an Emergency Fund
Indeed, an emergency fund is critical to ensuring you have the money to pay to repair a broken refrigerator, fund your child’s braces, or plug the leaky rooftop. But it is also a savvy way to prevent you from having to tap into your retirement savings when unforeseen expenses arise. Accidents occur, and life happens, but by shielding your investments and savings from withdrawals, you give it the best chance of moving closer towards your financial targets.
6. Eliminate Your Debt
A 2020 study by the Federal Reserve Bank of New York found that total debt for Americans over 70 spiked 543 percent from 1999 to 2019; the largest percentage increase for any age group.
People nearing retirement need to make it a priority to eliminate their debt. This can serve as a ball and chain that will follow retirees everywhere. From interest payments to egregious fees, debt can financially harm your retirement plans and erode your financial security.
Whether it is utilizing the debt snowball method or putting all of your extra cash towards paying off high interest “toxic” debts, find a method that helps you tackle these financial burdens early so that they don’t prevent you from enjoying your retirement income.
7. Speak with a Financial Advisor
In the end, perhaps the best thing you can do for your wallet, your retirement, and your peace of mind is to get in touch with a financial advisor. This industry professional can work with you one-on-one to devise a long-term financial strategy that can cover your bases, from debt reduction to retirement saving, to tax deductions.
People are living longer than ever before, and the cost of living keeps inching higher. Retirees need their nest eggs to go further, given that $10,000 is certainly not what it was five, ten, or 20 years ago. The good news: retirement does not need to be a crisis if you plan smart, and plan early!