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When you’re young, retirement often seems so far away that it’s barely worth thinking about. You’re in your twenties; there’s plenty of time to figure that out later. But failing to plan for your old age can become a habit, and as the years keep passing by, the next thing you know, your retirement is already on the horizon — and you have no idea if you’ll be ready.
The good news is that even if you are just 10 years out, there are plenty of steps you can still take right now to increase your chance of being able to have a secure retirement. To get expert advice on what to do to make that happen, GOBankingRates spoke to three financial planners: Stephen Kates, certified financial planner (CFP) and expert contributor at Annuity.org; Brandon Galici, CFP and owner of Galici Financial; and Maya Sudhakaran, head of growth and acquisition at the investing app Plynk.
Assess Your Finances
It’s critical to have an accurate snapshot of your financial situation before you do anything else. You need to know just how much of a challenge it’s going to be — and you might even find out that you’re in better shape than you thought. Either way, you need a clear picture of your starting point before you can make a plan to get where you want to be.
Kates stressed how important this first step is. “Take stock of your investments, future income sources and the location and condition of your assets. If you don’t know what you have or where it is, you can’t manage it properly. Do you have old 401(k)s or investment accounts strewn across different financial institutions? Do you know what you — and your spouse — can expect for Social Security or pension benefits at retirement?” Kates said.
Are You Retirement Ready?
Know What You’ll Need
Once you know exactly where you stand financially, you can figure out how much money you’ll need to fully fund your retirement. A simple way to understand this is by tracking your term ratio, which is simply your net worth divided by your annual living expenses.
“For example, if your net worth is $1 million and your annual expenses are $100,000, your total term ratio is 10,” Galici explained. “As you near retirement, you should expect to increase this by two to four per year. To retire in your 60s, you typically want to have a total term ratio of around 30. This is only a guideline, because we aren’t considering Social Security, working part-time or any other income.”
While the term ratio isn’t perfect — as Galici noted, it doesn’t incorporate retirement income or certain other factors, like inflation — it’s an easy way to wrap your head around how much savings you’re going to need.
Max Out Your Savings
Saving as much as you possibly can is obviously going to be an important factor in your ability to have a secure retirement. The higher your net worth is, the better — so start putting that money away. Don’t just let it sit in your bank account, though. Make sure you are getting the full benefit of whatever tax-advantaged accounts you have access to.
“As you put money aside, maximize your savings through retirement accounts such as IRAs and 401(k)s, especially if your employer matches contributions — plus, people 50 and over are eligible for an additional catch-up contribution of $7,500 in 2024,” said Sudhakaran.
Are You Retirement Ready?
You can also look for ways to increase your income during retirement, like continuing to work on a limited basis. Even just a few hours a week at a part-time job could go a long way to boosting your spending power.
If you can afford it, delaying the age at which you start receiving Social Security benefits can make a big difference, as well. While you can receive benefits as soon as age 62, it will be reduced. You have to wait until age 67 to receive your full benefit — but if you wait until age 70, you’ll receive 132% of your full benefit.
Monitor and React
No matter how detailed and well thought-out your plan is, you shouldn’t just set it on autopilot. Your finances and retirement goals can change over time, and your plan should change accordingly.
“You have 10 years to make changes and tighten up your finances to meet your goals. Maybe you need to save more. Maybe you need to invest differently. Maybe you just need to coordinate more with your spouse on spending and goal setting,” Kates said. “Regardless of the changes you need to make to satisfy your plan, you have time, and you have a target which makes it easier to succeed.”
Meet With an Advisor
Retirement planning can get very complex. If you’re feeling overwhelmed or don’t know where to begin, remember that you don’t have to figure all of this out on your own. A professional like a certified financial planner can help you get organized and build a plan that is tailored to your specific situation, which can be a huge help at every stage of your retirement journey.
Are You Retirement Ready?
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