Getting Retirement Right
Are You on Track?
Even if you’ve been planning for retirement, it may be time to ramp up your retirement assets to help achieve your goal.
The Center for Retirement Research at Boston College calculates that only half of U.S. households are financially on track for retirement. The other half (52%) are at risk of not having enough to maintain their living standards. Many of those have no retirement assets at all.
Which category are you in?
Even if you have been planning for retirement, the median for American families who have put money away is about $60,000. It may be time to ramp up your retirement assets to help you maintain your lifestyle once you stop working.
Step 1: Identify What You'll Need
As a starting point, one rule of thumb is that people should invest about 15% of their gross household income in order to live as well in retirement as they do now. But that's just a ballpark, and your needs can vary significantly.
It's best to think about what you'll need to retire, then work backwards. Keep in mind that it’s not necessary to determine an exact amount, rather it’s important to have a target given this number will affect your future lifestyle, legacy planning, long-term care options and more.
Because everyone's situation is truly unique, no easy rule applies. You'll need to consider:
- Your spending patterns
- The value of investments and other assets
- Social Security and other projected income
- How much you can realistically invest for retirement
- When you want to retire
- How much you'll need to live on each month
- Your tolerance for risk
- Longevity expectations
- And other individual goals and circumstances
Step 2: Leverage Strategies to Help Increase Your Retirement Assets
Knowing what you'll need is the first step. Getting there may not be so straightforward. However, there are strategies that may help you to increase your retirement assets and may help you avoid pushing off your retirement or living on less.
Maximize employer matches. If you have a lot of catching up to do, the first area of opportunity may be maxing out contributions to retirement plans if you are a participant. Many employer-sponsored 401(k) plans match contributions up to a set percentage – for example, the employer may contribute 50 cents for each dollar you put in, up to 6% of your salary. This is essentially free money, so do what you can to receive the maximum match.
Take advantage of over age 50 options. Additional retirement plan contributions, called catch-up contributions, are allowed after age 50. You may be able to contribute an extra $6,000 per year in a qualified employer retirement plan or $1,000 annually in an IRA.
Pay down credit cards. Average interest can run as high as 21%, and paying this each month is like throwing money away. Clearing credit card debt may open up funds that could be shifted to retirement assets, but it takes a plan.
Reconsider paying for college. Assisting your children can be a great source of pride. But if it comes at the expense of your future financial security, does it really help your children? Financial independence or being able to help them later in life may be a greater gift. It's worth exploring other ways to fund their education.
Pay yourself first – automatically. Putting yourself first takes discipline. Use automatic transfers to help make planning for retirement easier. If you don't see the money in the first place, you may not miss it.
Take advantage of compound interest. Earning interest on interest is key for growing wealth. Even if you're starting late, you can still benefit. Resist the temptation to withdraw interest earned. Reinvesting may allow retirement assets to grow at an ever-increasing rate.
The Best Time to Start Is Right Now
You've heard it before – start early, so you have years to accrue interest. While that may be true, it doesn't help you today. Fortunately, it's never too late. Small adjustments in your investments, spending and retirement age can have a bigger impact than you might expect.
The important thing is to avoid surprises when it's time to retire, and the best way to be sure is with the help of a financial professional. Even people who feel well prepared for retirement can be surprised by the opportunities a professional can find.
Talk to PNC today about your situation and what may be the most appropriate course of action for you to achieve your retirement goals.
You can be young without money, but you can't be old without it.
— Tennessee Williams
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