In today’s world everyone is nervous about retirement. I get it. The assurance and confidence previous generations enjoyed are not necessarily part of our journey. The path toward retirement varies greatly, no two journeys are the same, and retirement means something different to almost everyone. The common denominator is that every one of us is looking toward the day when we can let go of the 9 to 5 and embrace a pace that we set for ourselves. Let’s look at retirement in terms of savings strategies for younger employees in the accumulation (saving) phase where they are looking at crafting a long-term plan for retirement.
The industry standard tells us that the average retired American may need between 70%-80% of their pre-retirement income to remain comfortable in retirement. When most people hear this statistic they immediately say, “what do you mean 70%-80%, I am barely getting by on 100%?!” Here are a few stipulations that may make that number work:
- Your mortgage is typically paid off or soon to be paid off
- The expense of saving for retirement is gone
- Children are no longer in the picture, or so we hope
I know what you’re thinking, but there really are fewer expenses in retirement. The bigger question is how can I chart a course to be comfortable in being able to meet my needs in retirement?
For most Americans that translates to, “How do I max out my employer-sponsored retirement plan and what other tools are available?” To me that raises an additional, and perhaps more important question, “Is maxing out my employer-sponsored plan enough, and if it isn’t, what other options exist?”
Before we get too deep, let’s look at how maxing out your employer sponsored plan may work in your favor1:
If you happen to be the above average middle class American earning $75,000 per year whether that is combined or individually you may be doing what is necessary to provide for your family’s financial future but if you are well above the average, there may be some additional changes that need to be made to your retirement plan.
A household making $75,000 may be in good shape, but what if you’re a part of the population that is above these figures? How can you make sure you’re making the right decisions today to protect your financial future? The answer is closer than you think, it’s about capitalizing on alternative strategies for saving money outside of the standard employer-sponsored plan. The rule of thumb method of just contributing the maximum to your employer’s plan may not be “enough” for you. In order to stay on track to meet your retirement savings goals, other strategies should be explored. That’s one great reason to talk to your financial professional, they specialize in identifying the best savings vehicles for you and your individual circumstances. Your financial plan is about you and your goals. Staying in step with the ‘average joe’ won’t necessarily help you accomplish your goals and create the post-retirement life you’ve imagined for yourself.
For example1, an earner making $100,000 is projected to need to save total of approximately $36,000 per year in order to replace 80% of their pre-retirement income. That would be an additional $16,500 per year over the current retirement plan contribution limit of $19,500 ($26,000 for 50 and older).
With a little planning and a consistent investment in your future, you may be able to secure the retirement life you are dreaming of.
For more information on this topic, contact Will Gandert.