It's probably safe to say that planning and preparing for retirement hasn't been at the top of your bucket list, especially when juggling a career and family. You're not alone. In fact, an estimated 20% of those 50 or older have no retirement savings–none†! And of U.S. families with retirement savings many appear woefully short with a median of $87,000‡.
To further drive home the need to prepare, consider that, there's a good chance Americans who reach adulthood will live to see their 65th birthday§. Therefore, odds are you'll have to figure out your future retirement finances. For many, retirement may last decades, since men and women who reach 65 can expect to live to see 81 and 84, respectively¶.
Clearly the need to plan appropriately for retirement, is important, even if it's not on your bucket list.
Where are you now?
Before figuring out if you'll have enough saved and invested for retirement, take stock of where you are now. Analyzing a few factors, such as your income, debt, saving, investing, and spending behavior, could give you an indication of strengths and weaknesses. Huntington financial advisors have tools that could help forecast your retirement finances and "Probability of success" based on a variety of trajectories.
If your "Probability of Success" isn't as high as you might want, it's not too late to try to improve your position. If you do have some funds earmarked for retirement, maybe you're well prepared. For further insight, Huntington offers various calculators that might help you navigate the path to a comfortable retirement.
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Where are you invested?
In the past, it had generally been accepted that as one approaches or enters retirement, their investments take a hard turn to the conservative side of the road. But that's not necessarily the case any longer because retirement can last decades. It's important to diversify your investments as well as consider the tax implications of various types of accounts. Here are some account types to think about when investing for retirement.
- Tax-advantaged options such as company plans, 401(k)s, and IRAs
- Tax-free options such as Roth IRAs and Roth 401ks, health savings accounts, and cash-value life insurance
- Taxable accounts such as investment and trust accounts
- Within all these accounts, consider investments such as mutual funds, stocks, bonds, exchange-traded funds that match your risk tolerance and align with your goals.
We strongly suggest staying invested through retirement. Of course, as one ages, their spending window decreases so their growth needs may also decrease. Although, you could be 70 or 80 and have 70% in stocks if your goal is to pass your wealth to the next generation, or a charitable group, as two examples.
However, we base a person's allocation on their goals and risk tolerance and not age. The simple chart below provides some general guidelines, but remember that your goals, timelines, economic outlook and risk tolerance should be the investment allocation drivers.
| Age | Sample Investment Allocation |
|---|---|
| 40s | 80% to 100% in stocks 0% to 20% in bonds |
| 50s | 65% to 85% in stocks 15% to 35% in bonds |
| 60s | 45% to 65% in stocks 30% to 50% in bonds 0 to 10% cash/equivalents |
| 70+ | 30% to 50% in stocks 40% to 60% in bonds 0 to 20% cash/equivalents |
How much is enough to retire?
Is $1 million enough to retire? Is $2 million enough to retire? Well … that depends.
Whether you're ready to start saving and investing for retirement or already have been, estimating how much you'll need is important. The factors referenced above will play a major role in your retirement portfolio and are in your control. The "How much is enough" is subjective and also partially in your power–not only can you alter your income and what you spend, but also your expectations on retirement in general.
Other factors are, indeed, out of your control, such as inflation, market volatility, and healthcare expenses. But controllable or not, you can attempt to prepare for them. Plus, as far as healthcare is concerned, Medicare may cover significant healthcare costs, but generally only after age 65. Therefore waiting at least until 65 to retire can impact your finances.
Don't expect to come up with a specific amount that if reached will equate to a comfortable retirement. Instead create a budget of what you confidently estimate will be your income and expenses. Don't leave anything out. It's better to overestimate than not.
Maximizing your retirement
When you do retire, it'll be wise to review your estimates on a regular basis. If your numbers look positive, good for you. If there's doubt income sources will provide what you want and expect, there are a few steps you can take to hopefully improve your situation.
- Downsize: Can you live in a smaller home or get by with one (or no) car?
- Similarly, can you live somewhere that's less expensive?
- Are you buying items you actually need, or unnecessary things you want? Can you sell items, such as antiques and jewelry that you no longer need or want?
- Stay invested, even if in less-risky assets.
- Maybe go back to work, as a recent survey found that 20% of survey respondents do§.
Everyone's retirement plans and packages are unique, but it's safe to say that one goal most have in common is long-term security through retirement. There are many steps one can take to achieve that, but the key is to see where you are now and what might need to be changed.
