The following post is by MPFJ staff writer, Laurie Blank. Laurie is a wife, mother to 4 and homesteader who blogs about personal finance, self-sufficiency, and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom and to a simpler, more peaceful life.
According to a recent article on CNBC, a survey from the Economic Policy Institute (EPI) showed that the median retirement savings balance for people aged 56-61 is just $35,929.
For those aged 50-55, the median retirement savings balance is $26, 386, and for those aged 44-49, the median retirement savings balance is $15,158.
Investment giant Fidelity recommends that those aged fifty have at least six times their salary saved for retirement. If you are behind on your retirement savings goals, you’re not alone. But that doesn’t mean you have to stay that way.
Instead of being one of the many Americans who are behind on retirement savings, you can take steps to catapult your retirement savings up to numbers that make you feel more at ease about approaching your retirement years.
Here are 4 steps you can take to help improve your retirement savings outlook.
Make a Plan for How You Want to Live in Retirement
Do you know how much money you’ll need to live on after you’re retired? Or what your post-retirement budget will be? This is a great place to start if you are behind on retirement savings.
You might want to start by deciding (or talking with your spouse if you’re married) on what kind of lifestyle you want to live in retirement. Will you travel often or stay close to home? Will you want to have extra money to spend on kids and grandkids?
Do you have regular activities such as golf or salon visits that you want to be able to continue to afford in retirement?
Once you’ve decided on your post-retirement lifestyle, you can make an estimated post-retirement budget spreadsheet by calculating your post-retirement monthly expenses to the best of your ability.
A post-retirement budget will include any regular recurring costs such as housing expenses, food and utility expenses and giving expenses.
Your post-retirement budget should also take into consideration monthly savings contributions to cover any occasional expenses you’ll have in retirement such as the need for a new car, insurance premiums, travel expenses or healthcare costs.
Expenses for most of these items should be similar to what they are now for you and your spouse, assuming any minor children you have now will be grown and out of the house.
Healthcare costs may be higher depending on your post-retirement insurance plans and your health condition at the time of retirement, so you may want to add a bit of a buffer to that estimated monthly expense.
By having a good idea of how much money you’ll need to live each month after you retire, you can more accurately calculate how much more you’ll need to start saving each month in order to reach your desired retirement savings balance.
Make a Plan for How You Want to Live in Retirement
- Determine how much money you'll need in retirement by thinking about the lifestyle and activities you'll want to have on a regular basis.
- Action step - Create a post-retirement budget, including projected housing, food, utility, giving, savings for cars, insurance, travel, and healthcare expenses.
Pay Off Any Debt Balances
Entering into retirement debt free is extremely helpful when it comes to smart retirement planning. The less money you need to cover monthly expenses in retirement, the less money you’ll need to have in order to retire comfortably.
If you are currently carrying consumer or mortgage debt, make a plan to accelerate payments and get the debt listings off of your balance sheet. Figure out what the best debt payoff method is for you, and put your debt-free plan in place.
Your debt payoff plan might mean you need to work extra jobs to bring in more income, or downsize your house to one that will allow you to become debt free faster.
Paying your debt off early will take work, however the peace you’ll have when you are debt free will be worth the effort it takes. As a bonus, the faster you can get rid of costly debt payments, the sooner you’ll free up more money for additional retirement savings.
Pay Off Any Debt Balances
- Being debt free in retirement saves big money
- Action Step # 1 - Create a debt payoff plan
- Action Step # 2 - Pay off debts faster by getting a side gig/hustle going.
Implement a Value-Based Spending Plan
Most people don’t realize that they are wasting hundreds of dollars each month on expenditures that bring little or no value to their lives. A value-based spending plan means going through each expenditure you have and deciding whether that money could be put to better use.
For instance, let’s say you’re spending five bucks each morning for a mocha to enjoy at work. Is that $100 expenditure each month bringing the value to your life that you intend it to, or would you find more value by using that money toward debt payoff each month?
In other words, what brings you more joy: the daily mocha or the thought of total debt freedom? Your monthly cable package or being able to live comfortably in retirement?
By analyzing all of your expenses this way and re-routing money toward expenses that are more important to you (such as contributing to retirement investment vehicles), you can reach all of your financial goals faster, including your retirement savings goals.
Implement a Value-Based Spending Plan
- Action Step - Create a value-based spending plan for your own personal finances.
- This means going through each expenditure you have and deciding whether that money could be put to better use based on your personal/family values.
Take Advantage of More Retirement Savings Options
Are you taking advantage of all of the retirement savings options available to you? For instance, are you maxing out your 401(k) contribution limits – or at least contributing up to the full employer match amount?
If not, that might be a good place for you to start. Since 401(k) contributions are pre-tax earnings, they’ll help you to lower your taxable income as well.
Also, if you are eligible for a Health Savings Account (HSA) account, start contributing what you can as soon as possible. The great thing about HSAs is that your contributions carry over from year to year, meaning you can use the money you contribute to an HSA account to cover potential health care costs in your retirement years.
Another thing to consider doing in order to increase retirement savings is to direct some of your money into either a traditional IRA, a Roth IRA or both.
The maximum IRA contribution limits for 2017 (for both Traditional and Roth IRAs combined) is $5,500 per year for those under age fifty, and $6,500 per year for those age 50 and above. By maximizing IRA contributions now you can help increase the total amount you’ll have saved when you retire.
If you’ve got your debt paid off (or at least heavily under control) it’s important to maximize what you are contributing to your retirement accounts where you can.
Take Advantage of More Retirement Savings Options
- Retirement savings options to consider include a Health Savings Account (HSA) for health care expenses, a 401(k) for retirement savings through your employer, and a Traditional and/or Roth IRA that you open for yourself.
- Action Step - Set up a Roth or Traditional IRA for yourself at a low cost fee, index fund/ETF provider. My favorite places to do this are Vanguard and Betterment.
Conclusions
Don’t panic if you’re behind on retirement savings. Instead, change your course and route out a financial plan that will help ensure you can retire confident of your financial security. The more you can save toward retirement, the happier you’ll be, even if your retirement monies fall short of your ideal goal.
How about you all? How do you compare to the median statistics of amount saved for retirement? What steps are you taking to turbocharge your retirement savings?
Share your experiences by commenting below!
Summary and Action Plan
- Create a post-retirement budget, including housing, food, utility, giving, savings for cars, insurance, travel, and healthcare expenses.
- Create a debt payoff plan and pay off debts faster by getting side hustle going.
- Create a value-based spending plan for your own personal finances.
- Consider retirement savings options, such as a Health Savings Account (HSA) for health care expenses and a 401(k) for retirement savings through your employer.
- Set up a Roth or Traditional IRA for yourself at a low cost fee, index fund/ETF provider. My favorite places to do this are Vanguard and Betterment.
