7 Steps To A Financially Secure Retirement

The Employee Benefit Research Institute reports that 54 percent of American workers have saved less than $25,000 for retirement and about a third of them feel that they will have enough for a comfortable retirement.

Is that realistic?

How much should you have saved?

What if you’re barely making ends meet now?

What can you expect from social security?

Can you afford long-term care? 

If you’re still working and earning money, it’s not too late to get ready for retirement. In the end, it’s all about being smart with your money and paying some attention to how you use it, save it and where you hold it.

In this article, we’ll break down seven simple steps to help you get to a financially secure retirement plan:

• Calculate How Much Money You Will Need to Retire
• Saving Your Money
• Cutting Your Expenses
• Investing Your Money Wisely
• The Right Time for Social Security
• Pick Your Retirement Date
• Consider your Home

How Much Money Will You Need for a Financially Secure Retirement?

This is the magic question. How much will I need for a retirement income? It’s a personal question that starts with understanding what your day-to-day expenses will be. Remember: you will spend less on some things and may spend more on others. One of the first steps in planning for retirement is getting a handle on what your day-to-day expenses will be. Make note of fixed expenses like rent or mortgage (if you have any), pharmacy, groceries, utilities, insurance, and taxes. Then you have discretionary expenses like spending on gifts, clothing, entertainment, and travel. Remember that some expenses related to work can be reduced such as commute expenses.

Realistically, you should factor higher medical expenses because as we age we are more vulnerable to developing chronic and serious medical problems. You need to evaluate your health care coverage make sure you have enough coverage. When you become eligible for Medicare you should consider supplement medical coverage since Medicare doesn’t cover all medical expenses. Unexpected out-of-pocket medical expenses can devastate your savings and create debt during retirement. Take some time to understand the cost of purchasing extra medical coverage and factor that into a financially secure retirement budget. 

Saving Your Money

Ideally, you should be saving 10–15% of your gross income for retirement. If you work in a company where your employer matches your retirement contribution then you can adjust your saving amount to add up to 10–15% of gross pay (for example, you get 3% then you can save between 7–12%). If you’re just getting started, you can start with a lower amount. If you start by saving say 5%, plan to bump up 1% or even 2% in the following year so you don’t really shock your budget. Boosting your contribution each year, you’ll get to the 10–15% level within 5 years.

The savings plan should be an employer-sponsored plan like a 401(k), 403(b), or SIMPLE IRA. Note that 401(k)s, 403(b)s, 457s, annuities are not subject to current income tax as they are tax-deferred. Otherwise, open an IRA that allows for automatic contributions (automatic withdrawals from your bank account to the IRA on a scheduled day like your payday). It’s never too late to start saving. Just start off with a scheduled withdrawal schedule and plan to increase over time to get to your saving goal.

Cutting Your Expenses

Now that you’re putting money aside, you may feel an uncomfortable gap in your bank account but there is way, to get around that with some honest evaluation of your expenses. There are probably a few things you can find right off the bat that you can cut back on. The best way to start is to create a detailed list of your spending (collect your receipts, bills, and banking statements) and see exactly where your money goes. There are always unexpected expenses, but what about the every day and regular things? Smart spending on the little things can add up. For example, splashing out on one specialty coffee a week instead of five, bringing lunch most days, and reserving a lunch out once a month can soon add up. Saving on electric bills, gas bills, and phone bills can add up as well. What you save can add up to more than what you’re actually putting aside for retirement savings.

Investing Your Money Wisely

This is the part where you’ll need to get some professional advice from a financial planner or spend some time doing some research on investing your savings. There are online risk-tolerance tools that can give you some suggestions. Remember, your retirement savings shouldn’t be a mystery. You need to understand how it is invested so you know if it’s working to your best advantage. You’ve got a wide range of choices when it comes to investing your money. Consider stocks and bonds, mutual funds, and exchange-traded funds, as well as investment in gold, silver, and real estate.

With self-directed IRAs, you can have some say on where you want to invest. Diversity is also important to consider when you look at where your savings are sitting. (Hopefully, not all in one basket!) This part will take some time, consideration, and expert advice, but it will go a long way to maximizing your hard-earned savings.

The Right Time for Social Security

The reason we’ve listed timing for social security is that there can be a real impact on your finances based on when you take it. You can take it between ages 62–70 but it makes a big difference in the amount of money you get. At 62, you receive 25% less than if you wait for full retirement age. Also, this would affect you down the road since your annual cost of living adjustments will be based on a smaller figure (retired vs. working income). For those who wait until they are 70, they would receive 32% more than at full retirement age if it was, say, aged 66. This will depend on many personal factors, such as whether you can you continue to work and are you strapped for cash. Those who keep working or don’t need the extra money most often benefit by waiting longer to take social security.

Choose Your Retirement Date

Delaying retirement or full-retirement can be advantageous in that you will be able to save more and get more in your retirement. As we mentioned before, you can delay taking social security until age 70, and actually have a higher monthly benefit than if you begin earlier. If you decide to cut-down and just work part-time to keep some income coming in you don’t need to pull as much out of your retirement savings. Keeping more money in savings with a nice rate of return will act to grow your savings for a few more years. You even have the ability to bridge your reduced income by taking withdrawals with no penalty from a Traditional or Roth IRA (after age 59) so you can wait longer for retirement. Working part-time also helps many people ease into retirement in that they have still work and earn an income but have more free time to spend on the things they love.

Consider Your Home

Ideally, if you have a home, you’ll want to be mortgage-free before you retire. The extra expense will be a burden on your retirement savings. Working out the time needed to pay out your mortgage should be factored into a planned retirement date and savings plan.

We do carry a lot of equity in our homes and for some, downsizing, or moving to be closer to family members is a smart option. Will you still need all that space and will it become a burden down the road in terms of upkeep? Can you move to a less expensive neighborhood with lower taxes? Some of the money from selling a home can be moved into your retirement savings. Perhaps you are considering moving into a retirement community where you will have some medical and long-term care services. These are all very important questions to ask and will a financial impact on your retirement savings.