Tips to Prepare for Retirement Success

How Improving your Financial Wellness Today Will Lead to Retirement Success

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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 the things you can do and decide to take action today

Retirement confidence levels are really low right now with research reports showing that less than 20% of employees in the workforce report they are on track to meet their retirement goals. What’s more concerning in the report from Financial Finesse is that 61% of employees don’t know if they are saving enough to retire comfortably. These employees fall into the “unknown” category due to their lack of planning. As the common phrase says, “Those who fail to plan, plan to fail.”

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 take control of your retirement planning by following these 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. You can estimate what you will have available by looking at your current investments and retirement income sources. Then, calculate what you need to save annually to meet your retirement goal. Your written financial plan does not have to be overly complicated and can be as simple as a one-page plan.

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. Review your progress at least once a year. Also 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 with your spouse, partner, friends, family, financial planner, or anyone who will listen to your retirement plans!

Tip 2: Protect yourself and your loved ones

It is not uncommon to place all of our focus and attention on saving for retirement rather than concentrate on protecting against potential risks. Avoid that mistake by thinking about the financial risks you can withstand and the ones can you reduce the impact of 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. It is also important to recognize as your situation changes or a major life event happens, your coverage may need to change too. As your planned retirement date nears be sure to re-assess your life insurance needs (see Will you Still Need Life Insurance When you Retire?).

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 into 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 and taking your retirement dreams with them. 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: Take a 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 (401k, 403b, etc). Many financial experts suggest that your company retirement plan can be one of your best investments. Why?

  1. Contributions are made pre-tax so they directly reduce your taxable income. And they also grow tax-deferred, so you won’t pay taxes on the gains until you withdraw the funds.
  2. It is rarely wise to leave behind free money through matching contributions! 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 around 3 percent. Check with you HR department for more details.
  3. 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 and remember 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: Focus on 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 improving your overall financial health. Here are some easy ways to improve your sense of financial wellness and find more cash to put towards your retirement.

Increase your knowledge. The more time you take to learn about retirement savings options the better prepared you will be.

Increase your income. If you are worried about not having enough income to put towards 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 to put towards savings or to invest for the future.

Find ways to 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 save today so that you can invest it in a retirement vehicle for the future. Go beyond simply tracking where your money has gone in the past and tell your money where to go before the month begins. Figure out what you spend a month in committed expenses, like housing, utilities and food, versus your discretionary lifestyle expenses, like entertainment and dining out. Are these things that are more “want” or “need”? See where you can trim back and take that money and put it towards savings or investing.

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, which can make it one of the cheapest sources of debt.

Eliminate extra fees and charges. Are your current banking and credit-related relationships charging excessive fees? Shop around for better deals by using Bankrate or Deposit Accounts to compare rates and evaluate services between banks, credit unions, credit cards, and lending institutions. Use the extra savings from fees and charges to pay down debt or invest.

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. Estimate the number of withholding allowances you should claim on your W-4 with a withholding calculator.

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.