A Crash Course on Retirement Fitness


When it comes to retirement, the signals are definitely mixed.

A recent study by Fidelity offers some room for optimism. Their data shows the total amount of wealth in 401ks and IRAs is more than 11 trillion.

By anyone's measure, that's a major chunk of change. It's also an all-time high.

Yet it may not be enough. In fact, it may not be close to enough.

That's largely because there are two types of retirement savers. Though who do it right -- and then the vast majority. Too much of that 11 trillion is concentrated in the hands of too few.

That's not the fault of the fortunate minority. They deserve to be lauded for their efforts. We need to start moving more people into that column, and quickly.

The Baby Boom generation is aging. Government programs are underfunded. Workers aren't saving enough.

It's a recipe for big trouble.

So if you're not in shape for retirement, consider this your financial boot camp. A crash course on retirement readiness.

Figure out how much you'll need

There is no one size fits all answer to determine how much you'll need to save. It depends on your standard of living. It also depends on how exciting you want retirement to be .A travel-filled "every day is Saturday" retirement is going to be costly. A sedentary "watch TV on a fixed income every day" retirement less so.

So it's important to set your expectations. Most people tend to dramatically underestimate post-retirement cost of living, however. It's important to be rigorous and clear-eyed when making calculations.

Having around 10 times your final salary should be the bare minimum. If you ended at $90,000, $900,000 should be enough to meet basic retirement needs -- assuming you don't live too long.

Obviously, you can't start saving at 60 and hope to meet this goal. Sure, the job market for 90-year-olds might radically improve in the coming years -- but we wouldn't count on it.

You should have your salary times one saved by 35. By the time you're 45, it should be your salary times three or four. By 55, to have your salary times six or seven saved is a good goal.

Start "catching up" immediately

One of the most crippling delusions many of us have about saving is that we'll be able to overcome years of poor decisions via one grand gesture. We think we can institute a draconian savings regimen to bail ourselves out.

This almost never happens. The sad reality is that we have very limited time from a savings perspective. Once we're past 40, it is so limited as to become precious. There just isn't room for dramatic transformations.

We're equally as deluded about working longer to compensate for lost time. Sure, it sounds good in theory. Yet there is no guarantee you'll be employable. There's no guarantee you'll be in decent health. There's no guarantee you'll feel like working at 70 or 75.

It might sound plausible today -- but you don't know what it feels like to be 75. Your desire to work might ebb considerably. You may end up being a major burden on your loved ones.

Handle the retirement basics

If you're behind schedule, it's time to drop the false promises. Take full advantage of the time you have left. Increase your 401k contribution. Take full advantage of employer matches. Consider opening an IRA.

You'll also need to start seriously addressing your debt. Living on a fixed income is tough under ideal conditions. When you're saddled with debt, it becomes near impossible.

Paying off high-interest credit cards is key. This will free up more money for you to save. You'll stop giving your money away in the form of interest.

As you get closer to retirement age, you'll also want to pay off car loans and mortgages. Owning your home outright is a huge bonus for those on a fixed income. Housing costs are a retirement budget killer.

You'll also need to take full advantage of your employer health insurance while it's still available. Getting in front of your health conditions now will pay huge dividends later.

Finally, you'll want to start building an emergency fund. Just because your career ends doesn't mean life's big expenses suddenly stop. They just get a lot harder to manage.

Do the smart things that pave the way for a happy, healthy and wealthy retirement. It's not easy. You may have to delay gratification now.

Yet your future self will be thrilled you made the sacrifice.

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