How retirement-ready do you feel?
If you’re like most Americans, you probably aren’t one hundred percent sure. A whopping 7-in-10 of us think we’re either behind on retirement savings, or aren’t sure how or where to begin assessing our retirement readiness!
Recent data also reveal that Gen Xers, or Americans in their 40s and 50s, are struggling to save. Only 36 percent of this cohort actively contribute to a retirement account.
There is no better time than the present to make a catch-up plan. It’s never too late to increase your retirement savings! You should continue building up that nest egg until the day that you stop working entirely.
Here are some ways to make up for lost time and boost your retirement readiness.
1. Enroll in your employer’s 401(k).
If you aren’t already enrolled in your company 401(k), what are you waiting for? Get in touch with your HR department and open an account now. You can set up your 401(k) online, most likely in under an hour.
With a Traditional 401(k) plan, your contributions are made on a pre-tax basis - which removes them from your taxable income. That means you’ll pay fewer taxes for the year.
With a Roth 401(k) plan, your contributions are made on a post-tax basis - which means you won’t have to pay taxes on distributions in retirement.
Put your savings on autopilot by setting up automatic deferrals.
2. Make the most of your 401(k) contributions.
The first rule of contributing to a 401(k) is making sure you’re getting your full employer match. This is free money that can make a significant difference down the road. It also counts towards the percent you are saving for retirement.
Most experts recommend that you contribute 10 to 15 percent of your salary to cover your costs in retirement. Let’s say that your employer offers a generous 5 percent match. If you defer 10 percent of your salary, you’d be saving a total of 15 percent of your salary for retirement.
You can contribute up to $19,500 in 2021.
Have you, or are you about to celebrate your 50th birthday? If so, you’ve unlocked the ability to make catch-up contributions! You now have the option to contribute up an additional $6,500 -- up to $26,000 total -- plus any employer matching.
Finally, if you receive your bonus, send it straight to your 401(k) account. And when you get your promotion this year, increase your 401(k) deferral by one to two percent.
3. Maximize your other retirement accounts.
Do you still have extra funds left over after maxing out your 401(k)? Congratulations!
If your employer offers a health savings account (HSA), start contributing to that. You can contribute up to $7,000 in 2021. If your employer matches contributions to your HSA, that’s even better.
Finally, maximize your IRA contributions. You can squirrel away up to $6,000, with a catch-up contribution of $1,000.
If you’re fortunate enough to have money left over, invest it in a taxable account.
4. Go for your annual financial wellness check-up with a Fiduciary Financial Advisor.
Just like your annual physical, you need to meet with a Fiduciary Financial Advisor once a year to make sure your retirement strategy is in good health.
Why should I hire a Fiduciary Financial Advisor?
Financial planning software and rules-of-thumb can be beneficial, but it’s never a good idea to rely solely on generalized advice. Yesterday’s advice doesn’t necessarily apply to today’s market conditions and opportunities! Remember that cookie-cutter plans don’t account for important information, like whether you’re a parent, retiree, or spouse.
A Fiduciary Financial Advisor goes into detail about your financial goals and retirement vision. Your Advisor will use a sophisticated investment and tax-saving strategies to help you reach a better retirement.
Financial institutions and robo-advisors will give standard advice not because it's best for you, but because it's easy for them. Rules of thumb and planner sheets can give you a good starting point, but they aren't your financial North Star.
One of the most important things your Fiduciary Financial Advisor will do is ensure your asset allocation is aligned with your risk profile and time horizon. Asset allocation is the art and science of balancing risk by dividing assets among investment vehicles. The risk-return tradeoff is at the core of what asset allocation is all about.
5. Find a weekend side hustle.
It’ll be much easier to accelerate your retirement savings if you’re earning more.
You can open a service-based business for very little in start-up costs. You can offer freelance services for taxes and bookkeeping, tutoring, writing and editing, and even pet care.
If you fancy yourself a handyman, you can spend your weekends helping customers paint their homes or assemble furniture. Try advertising your services on NextDoor or TaskRabbit.
You’ve likely built a unique and valuable skill set over the course of your career. Consulting is a great way to offer your expertise at a high hourly rate.
You might also explore a second job before you retire or a part-time job during your early retirement.
6. Create a savings goal—and go for it.
Shoot for a high savings goal. Keep this number top-of-mind as you go about making your daily financial decisions.
Let’s say that you settle on the goal of $1,500,000 tucked away for retirement by age 65. This specific number will motivate you to find and eliminate all the unnecessary discretionary expenses — dining out, luxury vacations, shiny new gadgets — and will help you buckle down on your savings efforts.
The more specific the goal (how much you want to have in retirement savings, and by what age), the more focused your efforts will be.
7. Secure disability insurance.
Does your employer offer a group disability benefit? Secure disability insurance as soon as possible. Your chances of becoming disabled depend on your career and your lifestyle, but we’re all at risk of getting into car accidents or being diagnosed with unexpected physical ailments. You want to protect yourself and at least a portion of your income and nest egg in any worst-case scenario.
According to the Centers for Disease Control and Prevention (CDC), one in four U.S. adults, or 61 million Americans, have a disability that impacts major life activities. Disability coverage helps improve your chances of maintaining your quality of life should the unthinkable happen.
Contact your employer or professional association for the most cost-effective options.