Here's What Your Retirement Savings Should Look Like At Age 50
Did you just turn 50 and realized that retirement is coming soon? This article will help you determine if you are ahead of the game or lagging behind.
Whether it’s retirement or any goal, the way to give yourself the best chance of achieving success is to set specific, measurable, and attainable targets. This is essential for your progress. For example, a fitness goal such as "lose weight and get ready for summer" isn't likely to motivate you enough to see positive changes. This goal is not only vague, it's impossible to measure.
But - what if we change that goal to "lose 2% body fat by working out three times a week for 30 minutes?"
Now you have a specific and attainable target to work towards, along with an actionable plan that will inch you closer and closer to where you want to be.
Unfortunately, when it comes to retirement, a definitive benchmark (to serve as a goal) for retirement savings can be hard to determine. This makes it hard to track your progress and even harder to determine if you get to retire comfortably while living the lifestyle you want.
If you're nearing your 50's and want to learn more about what your retirement savings should look like, you'll want to read on.
Not only will this article help you determine whether you are ready to retire in the next 10 to 20 years, but, more importantly, provide some savings tips to help you catch up if you're a little behind.
A Target to Set Your Sights On
Building one's nest egg would be less confusing and more achievable if you had an exact dollar amount to target for retirement savings. But with our ever-changing needs and circumstances, coming up with such a figure is impossible.
However, financial planners agree that having three to five times your annual salary in savings is a good start. Anything less than three times of your annual salary and you may run the risk of financial issues after retirement, like running out of money.
Now, that's just a rough estimate. If you want a more precise target, working backwards to determine your after-retirement expenses and income will give you a better idea of how much money you need to have saved by 50.
When calculating your expenses, separating the essential from lifestyle expenses is step number one. The essential category includes insurance, mortgage, groceries, utilities, and other monthly expenses you're likely to have for years or even decades to come. Ideally, you want to cover essential expenses with more stable sources of income like rental income, a pension, social security, or short-term, high-grade bonds within your retirement portfolio.
Lifestyle expenses, on the other hand, include travel, hobbies, gifts, and the like. The amount of money you spend on lifestyle expenses can fluctuate, and hence, could be covered with income sources whose values change with the market such as the stock portion of your portfolio. This is because if the market is down (a bad time to be selling) you can delay some of these expenses until the market recovers.
Falling Behind? Here's How to Supercharge Your Savings
Fact: saving for retirement isn't one of America’s strongest suits. More than 50% of Americans haven't saved enough to cover essential living expenses in retirement like food, healthcare, housing. And worse, 33% don't have any savings whatsoever!
If you feel you're behind on retirement savings (and you're probably right), there's a lot of work to be done. You've spent the first decades of your career not doing much in the way of saving, making the following years even more crucial for your retirement.
Here are some tips to help you catch up on savings:
First, put a few years more on the job. By retiring at the age of 70 instead of 65 and saving 20% of your annual income, you're giving your nest egg a significant boost. Plus, you also delay taking social security benefits, which increases the payments you receive by 7% to 8% annually when you finally retire and take the benefits.
Control the cost of your investments by buying low-cost index funds and ETFs, which have very low annual expense ratios, can also help you prepare for a secure retirement. The average expense of a mutual fund is around 1%, index funds may only charge a tenth of that. By controlling expenses your savings will add up over time and add many years to the life of your portfolio.
And one last tip is to reduce your spending.
"We buy things we don't need with money we don't have to impress people we don't like," says best-selling author and financial expert Dave Ramsey.
And if you keep doing that, your finances after retirement will be shaky - and that's not impressive! Eliminate unnecessary expenses. And better yet, sell the things you don't need to help you declutter while saving more money to reinvest.
As well, the more you can control your budget now the less likely you are to overspend during retirement. If you adjust and are able to get used to a lifestyle with less spending now that lifestyle will be easier to maintain in retirement. Or think of it this way, the more you save now the more you can spend in retirement. Spend now or spend later but always think of the opportunity cost.
Do You Need To Hire A Financial Advisor?
Is a financial advisor necessary to secure your retirement?
No, as long as you have the knowledge, desire, and time to manage everything on your own. If you're one of those people who understand how to analyze cash flows, allocate their assets, navigate around tax laws, and are comfortable in choosing their investments, then with a little work you should be able to build up your nest egg and retire with confidence.
However, such people are more of an exception than the norm. And, with a plate full of responsibilities, most people simply don't have the time to micro-manage their finances. If you're more of the latter than the former, hiring an independent financial advisor can help you make the best money-related decisions possible and make your money work for you.
A financial advisor starts by gathering all necessary data to help you with your retirement plans: how much you earn, debts and expenses, and of course, your goals after you quit your professional life for good.
Using this information, the advisor will map out a plan that will help you cover your needs and expenses, clean up your debt, and grow your nest egg at the same time.
More importantly, an independent fee-only financial advisor works to grow your wealth (instead of growing their commissions) by recommending the best investment options for you rather than the products with the highest payout for the advisor.
Are You Ready for Retirement?
Numerous studies have shown that falling behind in retirement savings is, sad to say, the norm.
But you can be the exception: one who looks forward to retiring securely and worry-free! We have covered a lot in this post that will help you do just that including:
* A good ballpark figure for retirement savings in your 50's.
* How to work backwards and determine if your nest egg is in good shape.
* Actionable tips to help you supercharge your savings and catch up if you're behind.
* And why working with a financial advisor can be good for your retirement.
If you need more help, we're just a phone call and an email away.
The author of this post is Phillip Christenson, CFA, a fee-only financial advisor located in Plymouth, MN. He is co-owner of Phillip James Financial, a fast-growing firm helping young professionals and pre-retirees with comprehensive planning including tax preparation and tax planning.