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Is Your Retirement on Track?

by Jesse Campbell on
3/8/2024
in Budgeting and Building Savings
Two retirement age men playing beach tennis.

For most, retirement may be decades away. In fact, it may be so far away you're not even convinced that it will ever come. But rest assured, it will come. The question is: will you be ready for it?

Retirement planning is a long-term commitment that begins as soon as you start earning a real adult paycheck. It takes a lot of years of saving to build the sort of nest egg necessary to sustain you throughout your retirement. But retirement saving isn't a set-it-and-forget-it process. It's important to regularly assess your progress against factors like your age, lifestyle expectations, and financial goals.

Here’s how to know if you’re on the right path and what steps you can take to ensure a comfortable retirement.

Set your ultimate retirement goal

You can't know if your on pace if you don't know where you're trying to get to. That's why it's important to set clear goals. Having a clear vision of how you want to spend retirement can help you determine how much money you're going to need.

1. How do you plan to spend your retirement?

Consider the lifestyle you envision during retirement. Do you plan to travel extensively, downsize your living arrangements, or pursue expensive hobbies? Would you like to move into a retirement community or are you planning to get help to keep living in your current home? Are you considering continuing to work even after retiring?

Estimate your expected retirement expenses, including housing, healthcare, leisure activities, and other necessities. Having a complete vision for your life after retirement can help you create an accurate post-retirement budget and spending plan.

2. How much will you need to save?

It's math time (control your excitement). We need to determine what these goals are going to cost you. Fortunately, there are plenty of retirement calculators out there that can help you. (Here's one from Merrill.) You can also consult with financial advisors to determine the amount you need to save for retirement based on your goals and life expectancy.

The general rule of thumb is retirement spending will be about 85% of your current spending (assuming you want to maintain roughly the same lifestyle). Also, be sure to consider inflation and potential healthcare costs when estimating your retirement expenses.

3. How much do you have saved?

In order to know how close you are to your goal you need to know where you stand currently.

Total up your retirement savings across all accounts, including 401(k)s, IRAs, pensions, and other investments. Now's also a good time to see how these accounts are performing. Evaluate your savings growth rate and investment performance over time to help determine if you need to make any potential changes.

Check your retirement progress

There are a couple of popular ways to gauge your progress.

Reaching age-based milestones

One method is to consider your age and the amount you've saved. If you're planning to more or less maintain your normal lifestyle after retirement, it can be helpful to use your annual salary as the benchmark. For example:

  • By age 30 try to have saved the equivalent of your annual salary.
  • By age 40 try to have saved three times your annual salary.
  • By age 50 try to have saved six times your annual salary.
  • By age 60 try to have saved eight times your annual salary.

It's not exact, but it gives you a sense of your progression and can be a warning sign if you start to fall behind.

Sticking to a savings ratio

As you think about how much you should be setting aside each year, consider that retirement experts recommend saving at least 10-15% of your income for retirement throughout your working years. Consistently setting aside that 15% can put you in a good position.

Of course, once you retire you no longer need to set aside money for retirement. That's one of the reasons why your retirement savings only needs to cover 70-80% of your pre-retirement income in order to maintain your current standard of living.

Are you falling behind?

The reason why you want to check in on your retirement progress is to know when you need to make changes. If you're not where you want or need to be, you have a few options.

1. Increase your savings contributions

If your current savings fall short of your targets, ramp up your contributions to retirement accounts. Take advantage of employer-sponsored retirement plans and contribute at least enough to maximize any matching contributions.

You may need to change your spending and tweak your budget in order to free up more money for savings. You may also benefit from focusing on paying off debts, which can open up room in your budget.

2. Keep working for slightly longer

It's not the most exciting option, but delaying retirement by a few years can significantly boost your savings and Social Security benefits. Consider part-time work or consulting opportunities during retirement to supplement your income.

3. Adjust your investments

Rebalance your investment portfolio periodically to align with your risk tolerance and retirement timeline. Consider gradually shifting towards more conservative investments as you approach retirement age to protect your savings from market volatility.

4. Work with a professional

Consult with a retirement specialist to evaluate your retirement savings strategy and make adjustments as needed. Explore retirement planning workshops or seminars to enhance your financial literacy and decision-making skills. If you need help with more immediate day-to-day money concerns, MMI offers free financial counseling 24/7, online and over the phone. 

No matter where you are in your retirement savings process, it's never too late to make a plan and start saving. Good luck and happy retiring! 

Tagged in Retirement, Savings accounts

Jesse Campbell photo.

Jesse Campbell is the Content Manager at MMI, with over ten years of experience creating valuable educational materials that help families through everyday and extraordinary financial challenges.

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