Whether you’re 10 months or 10 years from retirement, understanding if you’re on track for the retirement you envision is critical to the important decisions you make today and in the future.
In today’s video, I’m sharing with you 4 critical factors that influence your retirement and determine whether you’re on track!
Click here to watch the full video or read the full video transcript below.
Are You On Track For Retirement? 4 Ways To Know
Many Americans are behind on retirement… but hope is not lost! With a few adjustments (that you may be able to live with), you can greatly improve your chances of not running out of money in retirement.
There are 4 primary factors that influence whether you’ll make your money last in retirement.
- Your retirement age
- How your money is invested
- How much you spend in retirement
- And how much you save now, before retirement
The good news is that all 4 of these factors are within your control, allowing you to take charge, control what you can, and retire confidently knowing that you’ve done all you could to secure a comfortable retirement.
The first factor that determines whether your money will last in retirement is the age in which you retire. Too many people don’t think this through, which is a big mistake! Your retirement age is so massively influential on your quality of life in retirement, it must be given the utmost importance. And unless you have a health issue that forces you to retire earlier than planned, you better think seriously about when you retire.
Why? Because delaying your retirement even by a year or 2 or even just a few months, is often enough to make the difference between going broke in retirement and making your money last.
Delaying your retirement will allow you to continue saving longer, take less income from your portfolio over your retirement (since you’ll now be spending less time in retirement), and, very important here, it allows you to delay social security (hence allowing it to grow).
The second factor that determines if you’re going to make your money last in retirement, is how your money is invested. The makeup of your portfolio is what determines your long-term returns.
Let’s say you only invest in CDs that are paying 2%. It’s going to take you 36 years to double your money. If you invest in a diversified portfolio of stocks and bonds that earns 8% a year, you’ll double your money every 9 years. You’re going to need your money to grow at a meaningful clip to be able to support you for 30+ years in retirement. So returns matter – big time!
It’s essential that you have safeguards in place to withstand downturns like having enough in bonds or cash. But at the same time, your investment portfolio needs enough in stocks so it can continue to grow, especially in the years leading up to retirement. You’ll also need to maintain quite a bit in stocks even after you’re retired.
What are your monthly living expenses to cover your basic needs? In addition to that, how much do you want to travel or eat out or budget for the other things you want to do? There’s also charitable giving and one-time expenses to consider, like paying for your daughter’s wedding, remodeling your kitchen, or buying a car after retirement. And the biggest question of all: what is healthcare going to cost in retirement?
These questions can all be answered. However, it requires tracking where your money goes every month and prioritizing those areas of spending that are important to you in retirement. This brings me to the 3rd factor: your spending in retirement.
One of the best things you can do as you get close to retirement is closely track your expenses for 6 months. Find out where your money goes and try to live these 6 months as if you’re already retired so you can see what your expenses will likely be in retirement.
You can’t afford not to do this! Your income will often be lower in retirement and you don’t want to be surprised to find that you just can’t afford to live the lifestyle you envisioned for your retirement AFTER you’ve already made the leap into retirement.
The last factor that determines whether your money will last in retirement is your savings rate. Too many Americans don’t save a meaningful amount of their income for retirement for a variety of reasons. The fact of the matter is – no matter what your income level is – saving the recommended amount for retirement (about 10% of your income) is the exception rather than the norm.
The younger you are and the further you are from retirement, the more important the savings factor is. If you’re close to retirement, say within 5 years, increasing your savings won’t be as effective as delaying your retirement date or reducing your spending in retirement… but it’s still important!
If you’re behind, you’ll need to figure out how much you need to increase your savings by each month or every year to catch up. Then figure out how much you can afford to save as well. How much you should save and how much you can afford to save are almost always 2 different numbers. Here is a link to my favorite quick and easy calculator >> to help you out with this factor.
Get On Track For Retirement!
So there you have it…The 4 primary factors that influence whether or not you’ll make your money last in retirement.
Hopefully after watching this video you have a better idea of what you need to focus on to get on track for retirement and stay on track for the retirement that you’ve worked hard for.