One out of every five employees admit their retirement savings are misaligned. Here's a guide to help realign your retirement savings.
Starting a personalized retirement plan is an essential step towards securing a comfortable retirement. Here's a simple guide on how to create one using a retirement calculator and your available savings accounts.
Gathering Financial Information
First, you'll need detailed financial information such as your current savings balances, monthly contributions, expected retirement age, projected expenses, and life expectancy. Input these details into a reputable retirement calculator, such as Kiplinger’s Retirement Calculator or a 401(k) calculator, to estimate the future value of your savings and identify any shortfall in funds needed to maintain your desired retirement lifestyle.
Adjusting Variables
Use the calculator’s scenario analysis features to adjust variables like your savings rate, retirement age, mortgage status, and investment returns to see how these changes affect your retirement readiness. This allows you to test strategies such as increasing contributions to tax-advantaged accounts (401(k), IRA), paying off your mortgage, downsizing your home, or delaying retirement.
Analyzing Results and Developing a Plan
Next, analyze the results to develop a savings plan tailored to your goals. If the calculator shows a gap between projected income and expenses, increase your monthly savings or adjust investment allocations to aim for higher returns, while being mindful of risk. You can also decide whether to prioritize paying off debt or boosting retirement investments based on the projected outcomes.
Monitoring and Updating Your Plan
Finally, monitor and update your personalized plan regularly—at least annually or after major life events like job changes or health issues—to ensure you stay on track and to adjust your strategy for changes in market conditions or personal goals. Consulting a financial advisor can provide additional tailored advice and tax-efficient strategies.
Additional Strategies
- Shortening the length of retirement can help save more for retirement.
- Looking for better-paying job opportunities is another way to increase retirement savings.
- Opening an HSA and supplementing IRA funds with it is another possible strategy if no 401(k) is available.
- Rolling over an old 401(k) into an IRA is a possible strategy to save on fees and potentially improve returns.
- Investing in an index fund instead of a costly mutual fund within an IRA could save money on fees.
- Putting more money into a 401(k) to get the full employer match is a possible strategy.
Special Considerations
- The decision to delay retirement should consider the ability to cover basic expenses.
- One in five workers don't feel they can afford their desired retirement lifestyle.
- Delaying retirement by a few months can significantly impact savings and reduce retirement cost.
- Make note of the balances and investments for each retirement account.
- Keep track of regular retirement contributions and any 401(k) matches from employers.
- Record the time until the planned retirement date.
- To aim for higher returns in your personal-finance plan and potentially close any identified funding gaps, consider adjusting your investment allocations, increasing your savings rate, or exploring tax-advantaged accounts such as 401(k) or an IRA.
- As part of your personal-finance strategy, you may want to explore additional investing opportunities, like index funds instead of expensive mutual funds within an IRA or rolling over old 401(k)s into IRAs to save on fees and potentially improve returns.
- If you're looking to boost your personal-finance situation, consider seeking better-paying job opportunities or opening an HSA, especially if you have no 401(k) available and wish to supplement your IRA funds.
