Tips to Prepare for Retirement Success

How Improving Financial Wellness Today Will Reap Rewards in Retirement

Man writing retirement on the reverse side of glass
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The retirement planning process takes time and effort. At times it may seem like an overwhelming task. But what you do today can help you achieve your retirement goals and allow you to maintain the lifestyle you want in your later years.

Here are some tips to make reaching those retirement goals feel a little more manageable.

Tip 1: Focus on What You Can Do Right Now

Feeling at ease about your retirement can be elusive. Only 23% of workers feel very confident that they're putting away enough to live securely during retirement, according to a survey by the Employment Benefit Research Institute. Only 42% have even tried to calculate what they'll need to cover their expenses when they retire. Without adequate information, you might feel paralyzed and unsure where to start.

If you are feeling a general lack of retirement confidence or fall into the category of “unknowns” because you have not yet created a basic plan, you can start with these basic steps to increase your sense of preparedness:

Create a Plan and Put It in Writing

Determine what you will need to retire. Even if retirement is a long-term goal, a ballpark estimate will do. Many experts recommend 70% to 80% of your working income as a ballpark, but this will depend on you and your preferences, health, and circumstances when you retire. Choose a starting number, then review the various income sources you'll have in retirement (social security, 401(b), etc.). Finally, calculate what you need to save annually to meet your retirement goal and make a monthly savings plan that will get you there.

Implement Your Plan

This is by far the most important initial step, because procrastination will only serve as a roadblock on your path to financial independence. If you discover that you will not be able to reach your retirement goal with the current money you are saving, take additional action today by identifying ways to save more, reduce your expense needs, eliminate debt, or alter your original plans. It is never too late to get back on the right track.

Track Your Progress

Running a retirement calculation at least once per year is advisable to see if you are on track to meet your goals. Keep in mind that your plan is dynamic, not static. Think about the impact that life events such as a marriage or divorce, promotion or layoff, birth of a child, and funding an education will have on your plan. If necessary, make changes to your plan as your situation changes and keep the lines of communication open with your spouse, partner, friends, family, and financial planner.

Tip 2: Protect Yourself and Your Loved Ones

When planning for retirement, it's easy to get caught up in the distant future and avoid thinking about present risks. Avoid that mistake by considering the financial risks you can withstand and the ones whose impact you can reduce or eliminate altogether. 

Your Life

Make sure you have adequate life insurance coverage and the right type of insurance for your needs. It’s best to review your coverage needs using an unbiased approach before thinking about the type of policies to fill any coverage gaps. You can generally choose from term, whole life, universal life, and variable life insurance. Review your policies at least once a year—as your situation changes or major life events occur, your coverage may need to change, too. As your planned retirement date nears, be sure to re-assess your life insurance needs.

Your Health

A long-term disability event or a long-term stay in a nursing home can have a dramatic and long-lasting impact on your wealth. Appropriate coverage can reduce the financial risk associated with these obstacles and should be a part of your retirement planning review. If you are concerned about your health insurance options as you get closer to retirement, be sure to include health care costs in your budget plan for retirement.

Your Assets

From an investment perspective, a diversified portfolio helps reduce the risk of your entire retirement nest egg going south. Choosing the right investment allocation based on your financial goals, age, risk tolerance, and time horizon can make a major difference. But you also want to think about other assets such as your home or other real estate properties.

Perhaps the most important asset is your ability to earn income both now and in the future. You may be able to use your passion and skills to generate extra income through self-employment or a retirement side hustle.

Tip 3: Look at All of Your Retirement Saving Options

There are a variety of options that can help you save for the retirement of your dreams. Here are three accounts to consider.

Employer-Sponsored Retirement Plans (401(k), 403(b), etc.)

Many financial experts suggest that your company retirement plan can be one of your best investments. Why?

  • Contributions are made pre-tax so they directly reduce your taxable income. They also grow tax-deferred, so you won’t pay taxes on the gains until you withdraw the funds.
  • The majority of companies offer matching programs that can enhance the return on your money. To benefit from an employer match, make sure you are contributing at least up to the company match, if not more. The average employer contribution amount is currently around 4.7%. Check with your HR department for more details.
  • Employer-sponsored plans are becoming more portable, meaning they can be transferred without tax consequences into an IRA or to a future employer’s retirement plan. 

Check Out IRAs

Even if you are participating in an employer-sponsored retirement plan, don’t feel like it is your only investment option when it comes to saving for retirement. IRAs are another great way to sock money away for the future. Some income limits and other restrictions apply in order to deduct the contribution or to contribute to a Roth IRA, so make sure that you are choosing the best IRA for your situation. You can always contribute to both if you are not quite sure.

Consider HSAs

Health savings accounts provide excellent tax benefits for out-of-pocket health care expenses. They are also considered by many financial planners to be a supplemental source of retirement income.

Tip 4: Improve Your Overall Financial Well-Being

Financial wellness is a term used to describe the status of our overall financial health and it is directly linked to retirement preparedness. Reassess the way you currently manage your finances and take a holistic approach to your overall financial health. Here are some easy ways to improve your sense of financial wellness and find more cash to put toward your retirement.

Raise Your Income

If you are worried about not having enough income to put into savings, consider increasing your income by working overtime, getting a part-time job, starting a business, or purchasing a rental property. Use the extra income to reduce debt so you have more for the future.

Reduce Your Spending

A budget or “personal spending plan” is a key step to retirement success. Living below your means allows you to increase the money you have to invest in a retirement vehicle for the future. Go beyond simply tracking where your money has gone and tell your money where to go instead. Figure out what you spend each month in committed expenses such as housing, utilities, and food, vs. your discretionary lifestyle expenses such as entertainment and dining out. See where you can trim back and put those savings toward your future.

Refinance and Consolidate Debts

If you have high-interest debt, spend some time researching lenders willing to refinance your current debt at a lower rate than you are currently paying. In general, collateralized debt, such as a car loan, will have a lower rate than unsecured debt. Real estate-based debt is generally tax deductible and can be financed over longer time periods than most other forms of debt. If interest rates are low, it might be a good time to consider refinancing your mortgage and putting the savings into retirement.

Eliminate Extra Fees and Charges

Are your current banking and credit relationships charging excessive fees? Shop around for better deals by using online resources such as Bankrate or Deposit Accounts to compare rates and evaluate services between banks, credit unions, credit cards, and lending institutions.

Search for Ways to Reduce Your Taxes

Contribute to flexible spending accounts (FSAs), if offered by your company, for paying medical and dependent care expenses on a pre-tax basis. Max out your HSA if you are in a high-deductible health plan. Both of these options will reduce your taxes and free up money for savings.

Improving your financial well-being doesn't happen overnight. But if you take just a few of these steps on a regular basis you will be on the path to retirement success.

Article Sources

  1. Employment Benefits Research Institute. "2019 Retirement Confidence Survey Summary Report," Page 3. Accessed Feb. 10, 2020.

  2. Fidelity Investments. "Fidelity Q1 2019 Retirement Analysis: Account Balances Rebound From Dip in Q4, While Savings Rates Hit Record Levels." Accessed Feb. 10, 2020.