Retirement is on the horizon, but you have strong suspicions your savings don't quite measure up.
According to a couple of Chattanooga financial advisors, it's a common scenario for many. And it's not always who you might think. While it's less common for high earners to be in a bind, it does happen. Because the truth about being "retirement ready" they say, is unique to each person.
There are cases where a person who brings in a modest income could retire early because he or she didn't need much, says David Wolfe, chief financial officer and business strategist at Acumen Wealth Advisors. And on the flip side of that, there are millionaires who can't retire because of debt and spending.
A big part of the anxiety around retirement savings stems from changes that happened during the 1980s. A major shift occurred when companies began phasing out pension funds (employer-funded accounts), putting more responsibility for savings on the shoulders of employees.
"We built our country on the idea that we had pension plans, and those would be supplemented by Social Security," Wolfe says. "But now, in most cases, everything has moved to defined contributions, and a whole lot falls to the employee. ... There's a lot of pressure to save the money yourself."
But for any person at any earning level who finds themselves in a situation where their trajectory to be able to afford retirement isn't good, Wolfe says there are options. And finding ways to earn more money isn't necessarily the solution.
Contributed photo / David Wolfe"It's more about making adjustments. And when it comes to retirement planning, small changes can have big results over time," he says. "We (Acumen) use the analogy of exercise. You don't have to make drastic changes. Small changes can have big effects over time.
But, he adds, determining whether you have enough to retire isn't as easy as asking, "Have I saved enough?" The question is more like, "Where am I projected to be based on current input?"
Everyone's situation is different, he explains. While some may choose to plan independently, Wolfe suggests that getting professional guidance provides a much clearer picture.
More than anything, people are surprised by taxes when they begin drawing retirement money, says Jody Riggs, a private wealth advisor with Ameriprise Financial Services.
"The issue is not only how much you might have saved," she says. "But what is the tax treatment of those dollars when you pull them out?"
"If you have a million dollars, but every bit is taxable, you've got to allow for that. You can't just pull that down. You've got to pull more than that."
When working to "catch up" on retirement savings, a crucial step is to seize the opportunities provided through employer-offered plans, she says. If the company matches the employee's contribution, it's an added bonus. For those who are over 50, the IRS allows "catch-up contributions" of up to $7,500, which some companies will also match.
Contributed photo / Jody RiggsRiggs also recommends carefully evaluating your debt situation.
"If you can greatly reduce or eliminate debt, that has a similar effect as saving more," she says. "If your accumulated savings does not have to provide debt payments, you have more dollars to use just for your lifestyle."
Depending on your circumstances, prolonging your Social Security payment can also be advantageous. On average, Social Security increases by about eight percent each year for every year you defer claiming the benefit.
If you wait until your full retirement age (which is either 66 or 67, based on your year of birth), there are no earning limits, allowing you to work as much as you want while still receiving benefits. But if you take the benefit before your full retirement age, there are restrictions on how much a person can work and earn.
Another piece of advice she offers is to allocate any windfall toward retirement savings. For those with lower earnings, that could be a tax refund; or for those in executive positions, this could be money earned through the stock market.
And, she says, there is the least popular option -- delaying retirement -- which could mean working full-time longer, or transitioning to a part-time job to minimize early withdrawals from retirement savings.
But, above all, she says, the most important step for each person is to "Know your numbers. Your numbers are unique to how much you've saved, what your lifestyle requires and what your tax situation is."
How much do I need saved for retirement?
The general guideline is to target a monthly income of about 60% to 80% of your pre-retirement annual salary. While you might spend less in certain areas of your life, expenses like health care or travel could increase. Talking with professional advisors is strongly advised, as each person's retirement circumstances are unique.
Source: Investopedia
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