According to a Deloitte Center for Financial Services report from earlier this year, 58% of pre-retirees don’t have a retirement plan. This, as you might imagine, is a problem.
Why? Because those of us who face things head on by calculating our retirement needs are more likely to meet them. This was the result of an Employee Benefit Research Institute study, which found that the use of online calculators and seeking the advice of financial advisors resulted in an increased probability of retirement income adequacy.
I don’t know about you, but that seems like a no-brainer to me. If you want to reach a goal, you have to first outline what, exactly, that goal is. Taking a shot in the dark isn’t going to get you there. Here, how to run the numbers:
Brace yourself. Just a word about this: The number given to you by a calculator or financial advisor might scare you. But it merely is something to work toward. Keep in mind that Social Security will factor in, too – and you’re likely to get raises in the future that will allow you to increase your savings percentage (in fact, you should do so every time you get a raise). Finally, matching dollars from your employer, count, too – you’re not in this alone.
Use an online tool. There are many, and they use varying algorithms, so I like to suggest running the numbers through a few and then comparing. Wells Fargo has one. I have one on my own website and I also like the Ballpark E$timator from ChoosetoSave.org. All three will ask you a series of questions and then spit back a goal.
Break it down. People avoid running the numbers on retirement because it is daunting; it’s a classic head in the sand situation. But knowing where you stand and where you should be headed can be a powerful motivator. As Jan says: “This is how much money I’m going to need for retirement. I’ve got to get at it.” If staring at that big figure scares you, break it down into how much you need to save per week, month, or year. And then keep in mind the power of investing – you could earn six, seven, eight percent or more, and when compounded, that adds a great deal to your bottom line.
Understand there are other options. If you find that you are approaching retirement and haven’t saved enough, there are strategies that can help give you a bit more wiggle room. One is to work longer – just a few more years in the workforce means your savings stays intact (and continues to grow) and you can continue to add to it. If full-time work isn’t an option, aim to find something part time that you enjoy. And then remember that you can always downsize – a smaller home will save you money, and it can make easing into your later years more of a seamless process.