When There's Not Enough In Your Retirement Savings

When There's Not Enough In Your Retirement Savings

The Insured Retirement Institute surveyed workers aged 40-73 in 2021 and found that 44% thought they had enough savings to retire. These people may be correct: 51% had less than $50,000 saved for retirement. Fidelity Investments recommends that you have 10x your annual salary saved before age 67. This is the age when people who were born after 1960 can receive full Social Security benefits.

No matter your age, it's the perfect time to determine how much you need to save before you reach retirement age. Consider the following steps if you are approaching retirement with inadequate savings.

Step 1: Check How Much You Have Saved Currently

You may have money saved from several sources to generate retirement income. Here are some resources that you might be able access:

  • Social security benefits
  • Employer-sponsored retirement plans, such as a pension or 401(k), or 403(b), are all available
  • Individual retirement accounts (IRAs).
  • Savings and investments for non-retirement
  • Large assets such as a house or a business are ideal.

On the Social Security Administration website, you can calculate your Social Security benefits. Are you curious about how much your retirement savings will stretch? The retirement calculator from AARP can help you determine how much money you will need and how much savings you have.

2. Calculate how much more money you need to save

Fidelity's guidelines can help you determine how much savings and investments are needed to retire comfortably. Let's say you expect to withdraw 45% of your preretirement income from savings, with the remainder coming from Social Security. Here's an example of where your savings should be at different ages.

  • by 30 : Have the equivalent of one year's salary in retirement savings
  • 40 : 3 times your annual salary
  • 50 : Six-times your annual salary
  • 60 : Eight-times your annual salary
  • by 67 : 10x your annual salary

Fidelity's guidelines can be helpful. However, you might want to perform additional calculations. You can estimate your retirement expenses by using your current budget. Factor in expenses such as child support, work-related expenses, or mortgage payments that you anticipate being finished by retirement. Consider your monthly projected expenses in relation to any expected monthly income from Social Security or pension. What will you really need each month?

You can use 3% to 5% from your retirement savings to cover expenses. If you have $3,500 in monthly expenses and expect $1800 in Social Security benefits, $1,700 extra monthly income will be required, which is $20,400 annually. This is 3% of $680,000, or 5% for $408,000.

3. If your savings are not enough, play catch-up

If you have little savings , then take the steps that your budget will allow to save more for retirement .

  • Maximize your contribution to 401(k), and take advantage any employer matching program your company offers.
  • Contribute to an IRA or a Roth IRA.
  • To build your retirement savings, you can use any bonus money, tax refunds, or side income.
  • To make more retirement savings, optimize your budget.

What happens if you have less than adequate savings? It is important to increase your retirement savings if your savings are less than 40 years old.

You have several years before retirement so you can not only accumulate more money but also have the time to invest in income, asset appreciation, and compound interest.

You might also be interested in brainstorming creative ideas to improve your career, adjust your lifestyle, or leverage your assets. These are just a few ideas to help you get started.

  • Keep working. Keeping your job for a few more years could increase your Social Security benefits. Your benefit may increase by as much as 8% each year if you continue working past 70. This is in addition to the 67-year-old benefit. You can also work longer and contribute more to retirement. It also reduces the time it takes to withdraw money from your retirement savings. Consider whether you can reduce your work hours by working part-time, asking for a “demotion” in a less demanding job or becoming a consultant. As you leave your job, you could consider a second career.
  • Make a lifestyle change. Perhaps you can sell your house and move to a more affordable home or community. Or, convert a portion of your home into an income property. Are you able to live without a car or a high-end phone plan? What about travel and dining out? Do you have family or friends who might be willing to move in?
  • Your assets can be sold. Selling your home could be an option to make some extra cash in retirement. You could also consider a reverse loan to generate monthly income from your home. You might also sell other assets, such as a business or vehicle you no longer own.

4. Profit from Tax Incentives

Tax incentives may give you an edge in saving for your retirement. Traditional IRA accounts and employer-sponsored retirement plans are exempt from tax. Tax-deductible contributions can also be made with higher catch-up contributions for taxpayers over 50. You may be subject to additional restrictions depending on your income.

The IRS offers a saver credit for 2021. This credit allows you to deduct up to 50% of your retirement plan contribution directly from your income tax bill. It is worth up $1,000 for single filers and $2,000 for married couples filing jointly. Credits are restricted based on income. For more information, visit the IRS.

 

5. Talk to a financial expert

Planning for retirement can be a daunting task and even more so if you have limited funds. A solid and knowledgeable financial advisor can make a big difference. Trusted financial advisors can help you create a savings plan, build a portfolio, and explore your post-retirement options.

Your bank, credit union, or employer may offer free or low-cost advice. You may be interested in finding a financial advisor that will help you over the long-term. Be careful about choosing someone you trust. These tips from the U.S. Securities and Exchange Commission are for choosing an investment professional.

Get Started Now

It can be scary to think about your life without regular income, especially if you have little savings. No matter where you are on your journey, don't lose heart. You can maximize your resources, double your savings efforts, think creatively about your choices, and seek out the best advice. Even if it was years ago and you have spent thousands of dollars, now is the best time to get started.

This is our disclosure:  This summary is for informational purposes only. This summary is not intended to be a recommendation for or give advice for any company or individual.

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