To have a decent shot at maintaining your standard of living in retirement, you should have six to nine times your salary stashed away in a 401(k) or other savings accounts by your mid-50s to early 60s.
That’s as good a general rule of thumb as any, but most people don’t come close to that, and some don’t have anything saved. According to a 2018 Mass Mutual Survey, less than half of respondents were confident about being ready to retire at their intended age, and fewer people have determined how much income will be needed in retirement.1
Granted, it’s never too late to start saving for retirement. However, starting closer to retirement means saving a significantly higher percentage to reach the equivalent of what you would have had, had you started saving just 10 percent of your income in your 20s.
One popular solution to close the retirement savings gap is to work longer. While many Americans plan to do this, it’s not necessarily a reliable solution. For instance, there might be an illness, financial hardship, or unforeseen change in employment. Trying to find a comparable salary in your 50s and 60s is challenging. The only thing you can control is how much you save.
That requires a retirement saving strategy. And discipline with your money.
Here are three effective financial moves that will help ensure your retirement is as you envisioned:
- Max out tax-advantage retirement accounts. One of the most straight forward ways to catch up on retirement savings is to contribute the most money you can to tax-advantage accounts. That means maxing out the 401(k)s (at least contribute enough to capture the company match), individual retirement accounts (IRAs), or Roth IRAs. Those aged 50 and older are allowed additional, “catch-up” contributions to these retirement savings plans.
- Look to your home equity. If you have equity in your home, you may be able to tap it for retirement money in any number of ways. One option is to downsize. If you would rather stay in your home, consider a reverse mortgage. These government-backed loans allow older homeowners (62 years and older) to convert some of their home equity into cash. The reverse mortgage is certainly not without risks, but unlike years past, it is no longer the loan of last resort for cash-strapped homeowners in retirement. It is now being used as part of an overall financial strategy because there are some new safeguards and policy changes that make the product more respectful.
- Be strategic about Social Security. While you may be tempted to start collecting Social Security benefits as soon as you qualify, try to resist this temptation. If you are healthy enough to delay, delay. Consider this: Between the ages of 62 and 70, your social security benefits rise about 8 percent for each year you defer taking them. Wait until age 70, and your monthly benefit can be 76 percent higher, on an inflation-adjusted basis, than if you claimed at age 62.
Need help with retirement planning? We invite you to schedule a complimentary consultation with one of our financial advisors.
