Twenty-eight percent of Americans have less than $1,000 saved up for retirement, while 57 percent have less than $25,000, according to the Employee Benefit Research Institute’s 2015 Retirement Confidence Survey. Only 24 percent have more than $100,000 saved, which is a sobering figure in light of Bureau of Labor Statistics data indicating that the average annual expenditure for households with persons over 65 was $42,557 in 2013. The EBRI’s survey also found a correlation between participation in a retirement plan and confidence about one’s financial future, with 28 percent of those participating in a plan feeling very confident about their outlook as compared to only 12 percent for those not taking part in a plan. If you want to feel confident about your financial future, your best strategy is to start building a solid retirement plan today.
Identify Your Retirement Goals
Start by listing your most important retirement goals on paper. One way to brainstorm your goals is to ask yourself a list of questions, such as:
- When would you like to retire?
- Where would you like to live, and in what kind of home?
- What would you like to spend your time doing?
- Will you be working part-time or running a home business?
- Will you travel?
- What will you spend your free time doing, and how many hours a week?
Come up with a list of five goals described as specifically as possible.
Create a Retirement Budget
The more clearly you can define your goals, the more precisely you can estimate your projected expenses and develop a realistic retirement budget. Estimating this accurately requires taking into account expenses such as mortgage payments, taxes and health care. Vanguard provides a retirement expense worksheet to help you add up the cost of these and other variables.
Assess Your Assets
After defining your goals, take stock of what assets you have that can go toward building your nest egg. This involves calculating your net worth, which includes adding up the value of assets such as your home, savings, and stock investments and subtracting liabilities such as mortgage and credit card debt. Bankrate provides an online net worth calculator to assist you with making this estimate.
Develop an Investment Strategy
Assessing your net worth should be a step toward developing a strategy for growing your assets through a sound investment plan. In today’s economic environment, a sound retirement income strategy should include withdrawals from an investment portfolio along with fixed-income and variable annuities. To learn more about investment options, consider reputable training resources such as Moody’s Analytics public seminars that teach up-to-date information about today’s financial market.
The most practical step you should take is to get in the habit of saving — or, if you’ve already started, keep going and try to gradually increase how much you save. Financial advice expert Jonathan Pond concurs, recommending that if you can’t afford to save 10 percent of your salary, start small with 1 or 2 percent and gradually increase it to 5 percent. Some financial advisers such as Elizabeth Warren recommend budgeting as much as 20 percent of your income toward saving and debt repayment.