Retirement Planning Reality Check: Are You Saving Enough?

Retirement planning can feel overwhelming, especially if your golden years are decades into the future. Should you base your savings targets on your current income or your age? How do you know if you're on track at any given time?

The answers to those questions may seem difficult to figure out, in part because different approaches to retirement savings can give you widely different results. One recommended measure might show that you're in good shape while another, also recommended, shows you're behind. But the good news is – you can figure it out. 

Thinking about the details of your retirement can help you create a financial goal and then work backward to lay out a retirement plan. 

Is your retirement planning on track? Answer these questions to find out

There are several factors that can impact your finances during retirement, moving the lever from "more" to "less" savings needed (or vice versa) depending on your answers:

1. Time; at what age do you plan to retire? Will your spouse or partner retire at the same time? How many years of retirement income will you need? 

2. Income; will you receive a pension? Do you expect to work part-time after you retire? Do you want to factor in Social Security benefits? Do you have investments that will provide income?

3. Lifestyle; where do you plan to live when you retire  and what is the cost of living? Will you rent or own your home? Do you plan to travel or start an expensive new hobby?

4. Medical Care; will you have employer-based medical insurance? If not, what are your insurance options given your anticipated retirement age? Are you prepared for fluctuating healthcare costs and changing medical needs?

Retirement Tips

Whether you have yet to save a dime or have been stowing away money for years, here are some tips to help you achieve financial freedom in retirement:

1. Take advantage of employer-based plans. If your employer offers a 401(k) or other retirement plans, sign up and contribute the maximum you're allowed each year. A company match or tax break can help you save even more.

2. Make saving a priority. "It's never too early or too late to start saving," says the U.S. Department of Labor in "Top 10 Ways to Prepare for Retirement." Even if you have an employer-based plan, you should also save on your own. Consider opening an Individual Retirement Account (IRA). Do research and talk to a professional to determine if a traditional or Roth IRA is better for you. Each offers potential tax benefits as well as the opportunity to grow your money for retirement.

3. Choose tools wisely. Retirement savings calculators can help you estimate how much you'll need to save as you age, but keep in mind some calculators have flaws that can produce misleading results. Look for one that takes just a few minutes to use, with suggested (but editable) rates of return. Make sure any assumptions (inflation, life expectancy, social security) made in the calculator are clear to you and easily editable for your specific needs. Ultimately, a good calculator lets you experiment with trade-offs such as working longer or retiring early, increasing savings now or waiting, etc.  

4. Use percentages to get started. One rule of thumb uses a simple percentage — put aside 10% to 15% of your income for retirement every year. If you earned $60,000 per year, your annual retirement savings target using this guideline would range from $6,000 to $9,000. If that doesn't seem do-able, you can start with 5% and try to increase the percentage over time.

5. Get professional advice. A financial or wealth advisor can give you an accurate idea of where you are on your savings journey and work with you to set retirement goals that make sense for your personal situation. Your advisor can also help you choose investments that are appropriate for you and adjust your holdings as you get closer to your retirement date.

Regardless of how old you are, the more you save and invest, the more financially stable you could be during your retirement years.