The COVID-19 pandemic and the subsequent financial concerns, including considerable unemployment and stock market volatility, have affected many Americans’ short- and long-term budgeting and savings goals, particularly when it comes to retirement planning.
Faced with imminent and tough choices, many individuals were reducing or even discontinuing their retirement investments by autumn 2020, according to various studies, jeopardizing whatever retirement plans they may have had. Now is the moment to start, examine, or reconsider a long-term investing plan for growing retirement assets while Americans and the economy recover on many fronts.
A well-thought-out retirement strategy may provide you with greater flexibility and security in the future. Consider that Social Security only covers around 40% of the typical worker’s salary, implying that you’ll need to supplement your income with earnings from retirement plans, other assets, and maybe part-time employment. When you quit your work, a typical rule of thumb is that you’ll need roughly 80% of your pre-retirement income.
Where to Begin?
To begin, set up a fund against unforeseen expenses in emergency savings. A good suggestion is to start with a goal of saving $1,000 in an emergency savings account, then work your way up to around six months of your take-home income. To make saving a habit, consider enrolling in an automated savings plan. Additionally, to minimize overdrafts, attempt to preserve a cash buffer in your checking account.
Contribute to a 401(k) if your employer provides one, and if your 401(k) contribution gets matched by your employer, save up to the matching percentage to take advantage of your employer’s contributions. However, don’t stop there. Consider making the maximum 401(k) commitment for the best long-term results.
You may as well wish to open an Individual Retirement Account (IRA) or a Roth IRA (if you meet IRS requirements), both of which enable you to start modest and gradually raise your contributions over time. (Note that the saved amount in a Roth IRA is taxed upfront, not when you withdraw it.)
Consistency and persistence are the keys to saving, understanding that every little bit helps, particularly if you have a long time before retirement. You may need to change your contributions at times owing to other, more pressing responsibilities, and that’s OK. Just remember to reevaluate every year.
Keep in mind the big picture. Consider what you want from a typical day in retirement to help you set your retirement goals. Are you planning to go abroad a few times a year, see Broadway musicals in New York, or even add an art studio, fitness area, or home theater to your house? Your ideal is unique to you, and no two retirements are the same.
A reasonable rule of thumb is to assume that you’ll need 70-80% of your pre-retirement income level each year to meet your retirement expectations, taxes, and healthcare bills.
Why are retirement salary predictions lower? You may already be living on 80% of your salary today after paying your portion of Social Security taxes and deferring income into retirement plans out of your paycheck. Using 70 to 80% income in retirement as a guideline may be close to what employees are now surviving on.
Also, provide a lifestyle buffer of 5 to 10% of your retirement income requirements for the first ten years of your retirement. Due to a pent-up urge for travel and hobbies, many retirees spend more in their early retirement years. Whether you’re touring the globe or settling into your present home, all of these factors will help you develop and realize your retirement vision.
Regularly audit your income and present retirement contributions, as well as your spending, to determine if you can make changes that would enable you to contribute more to your retirement plans. Look for additional or incremental sources of income to complement your short-term cash flow and allow you to contribute to your retirement plans.
Other financial considerations for retirement include Social Security, healthcare alternatives, and alternative job possibilities such as part-time work. It may be tempting to collect Social Security benefits early, but the longer you wait, the bigger your monthly amount will be.
Although Medicare eligibility starts at 65, retirees may get private health insurance via the Affordable Care Act’s federal exchanges before then. Finally, remember that retirement doesn’t have to be an all-or-nothing proposition as part-time or consulting employment may be able to help you bridge income gaps.
You’ll need a strong strategy to get you there if you want to enjoy the retirement lifestyle you want. Make contact with your banker, and they’ll be able to guide you toward the retirement that’s perfect for you.
Pamela Hoggard is dedicated to helping people create and preserve wealth. Her
key to success is her personalized approach in assisting her clients with a broad
range of needs – from retirement solutions, such as creating a guaranteed income
for life, to healthcare, investment, and Social Security planning.
Pamela E. Hoggard is the Principal Agent for PEH Financial Services, LLC.
As an independent advisor, Pamela says, “I work exclusively for my clients, and not
for insurance companies or other financial firms. I am free to search the marketplace and
recommend solutions that are driven strictly by my clients’ needs and their best
interests. Dealing with me, clients receive unbiased, well-thought-out planning, not
a sales pitch.”
A financial professional since 2001, Pamela has the kind of in-depth knowledge of
financial markets that come from 21 years of experience helping people reach their
financial goals. In addition to three years of coursework in Business Administration at
the University of District of Columbia, she maintains a vigorous program of
ongoing education in the latest financial strategies and tax laws