Everything You Need to Know to Get Your Retirement on Track
No matter how you slice it, the retirement numbers are grim.
According to Federal Reserve research, 31-percent of Americans have no retirement savings or pension. A stunning 19-percent of people aged 55-64 fall into this category. This is one reason why millions of people must rely on Social Security as their primary income source during retirement.
America's Personal Savings Rate is hovering around four-percent. It's been dropping for decades, and is about one-third of what it was in the 1970s.
All of which raises an important question: Why aren't people saving? Why are we putting away, on average, just four cents of every dollar of disposable income?
Some of the problem is structural. Defined benefit pensions are on the way out. Workers now have to assume responsibility for their own fate. Employer-based retirement programs are an imperfect replacement.
Yet that's not the only reason. A 2015 study by the Transamerica Center for Retirement Studies showed that 59-percent of people are "very or somewhat" confident they will retire comfortably.
That sunny outlook is directly contradicted by the retirement data listed above. Which leads us to one conclusion: Many American workers are either in denial about their situation, or are laboring under some serious misapprehensions.
If you're struggling to save enough for retirement, it's important to realize the gravity of your situation. You still have time to make changes. It's imperative, however, that you move quickly.
Action Plan: How Do I Get My Retirement On Track?
If you're struggling to save at a sufficient level, or need to kickstart your retirement planning, consider the following steps.
- Increase your IRA and 401k contributions to the maximum. IRA contributions are capped at $5,500, or $6,500 if you're 50 and up. You can contribute $18,000 to your 401k. If you're older than 50, you can make an additional "catch up" contribution of $6,000.
- Pay off your high-interest debt. This kind of debt is a huge drain on savings. It's also a terrible albatross to carry into retirement. By paying off your high-interest debt, you gain much needed savings flexibility.
- Consider a longevity annuity. Like standard annuities, you hand over a lump sum for guaranteed future payments. Yet with longevity annuities, these payments are delayed for a decade or two. By doing this, you can secure lifetime income for less upfront cash -- and larger retirement payouts.
- Don't have access to an employer retirement account? Consider opening a myRA, a new federal program that just opened up to the public. It functions as a starter Roth IRA that can later be rolled into a conventional IRA. An account can be opened with as little as $25. Security is a plus, as myRAs are pegged to ultra-stable U.S. Treasury bonds. These accounts are also portable and have no fees.
- Fees are your enemy, so it's critical to reduce them. The average mutual fund expense ratio is around 1.25 percent. Doesn't seem like much, right? Yet that can add up to hundreds of thousands of dollars over a 30 or 40 year timeline. Even worse, hidden costs can boost mutual fund fees as high as three or four-percent. Be relentless in your efforts to reduce such fees. If your 401k has a low-cost index fund option, choose it.
- Plan for setbacks. If you're suddenly faced with a wealth-depleting market correction right on the cusp of retirement, it's natural to be anxious. It's also easy to make a poor, emotion-based decision. By planning for such scenarios ahead of time, you can ride out the turbulence in a more rational manner. One possible plan: Move into something safe like U.S. Treasury bonds if the market drops by a predetermined amount.
- Don't dip into your savings. Instead, cut out unneeded luxuries and use the money to create a rainy day fund. A good emergency savings fund should be able to finance your expenses for at least six months.
The truth is plain: Plenty of people are fooling themselves when it comes to retirement. Yet you don't have to join their ranks. By taking immediate action to get your retirement on track, you can maximize your odds of securing a happy and stable future.