Retirement takes a lot of planning. If you’re still paying off debt and putting off saving for retirement until later in life, retiring may be further away than you like.You may also need to delay retirement if you’re putting all your eggs in one basket.
Relying on just Pension or an employer-sponsored retirement plan isn’t enough you need a diversified retirement portfolio, according to experts.There are a few questions you should ask yourself before deciding whether you’re ready to retire.One of those has to do with how much money you’ve saved.
Even if you’re emotionally ready to say goodbye to the 9-to-5 and know exactly what kind of lifestyle you want, retirement isn’t very feasible if your finances aren’t in shape.If you haven’t saved enough money to get you through your golden years, you’ll probably need to delay retiring.Here are seven ways to tell if you may not have enough money to retire.
1. You’re not near your desired retirement savings goal.
There’s a simple way to calculate how much money you need to save to retire: divide your desired retirement income by 4%.For example, if your perfect retirement salary is $40,000, divide it by 4%, or 0.04, and you get $1 million. If it’s $80,000, divide it by 4%, and you get $2 million.If you have enough saved up, you should be able to withdraw 4% each year to pay for living expenses in retirement. Using the 4% withdrawal strategy requires earning at least a 5% investment return annually (after taxes and inflation) on your retirement savings, according to a financial expert.If your savings isn’t close to what you need to live off your perfect retirement salary every year, you may have a ways to go before retiring.
2. You’re still paying off debt.
Not all debt is considered bad, but even good debt can turn bad if you’ve been making late or incomplete payments.Financial experts typically advise prioritizing paying off high-interest debt. If you’re still paying off a credit-card bill or consumer loans with high interest, it’s likely you’re more focused that than saving for retirement.”The more debt you carry into retirement, the more retirement income you’ll need to pay off what you owe,” Cameron Huddleston of GOBankingRates said. “When you’re deciding when to retire, you need to figure out how long it will take to pay off your existing debts.”Scott Bishop, the director of financial planning at STA Wealth, told Huddleston that you should first pay off any high-interest debts that aren’t tax-deductible, such as credit-card balances. If you have good credit, refinance any high-interest debt that’s tax-deductible, such as a mortgage, to get the lowest rate possible, he said.
3. You put off saving for retirement.
When it comes to saving for retirement, it’s better late than never. But saving early is the best thing you can do for your retirement account, thanks to the power of compound interest.When you start saving, your original pot of money earns interest over time, creating more money in your account that accrues even more interest. The little bit of interest early on can make a big difference.For example, a hypothetical person, Susan, invests $5,000 annually from age 25 to age 35 for a total of $50,000; assuming a 7% annual return, she’ll have $562,683 saved by the time she retires at 65.If Bill invests $5,000 annually but doesn’t start until 35 and keeps it up until age 65, for a total of $150,000, he’ll have $505,365 saved by retirement.”Whatever situation you’re in, it’s never too late to start growing, maximizing and safeguarding your retirement income — there are always things that can be done,” Nigel Green, the founder and CEO of the financial consultancy DeVere Group, told MainStreet. “But the time to act is now as the longer you put off planning for your retirement, the harder it becomes.”4.You haven’t been taking advantage of employer-sponsored retirement plans.Many employer-matching retirement programs, like 401(k)s match up to 3% or 4% of each paycheck at 50% or 100% of the contributed amount, Thomas Walsh, an investment analyst with Palisades Hudson Financial Group.But having a small amount taken out of your paycheck each month isn’t the best way to achieve comfortable retirement.”As your salary increases, try to maintain the same standard of living while increasing your retirement plan contributions,” Walsh said. “Not only will the amount deducted from your paycheck escape income tax until retirement, the investments held in your account grow tax-free until the funds are later needed as well.”These tax savings can benefit from compounded growth, making a big difference in future retirement income.
.Your retirement portfolio isn’t diversified.
If you’re taking advantage of employer-sponsored retirement plans, all the better but you shouldn’t put all your eggs in one basket.”With the grim outlook on the future of Social Security and pension plans becoming a thing of history, relying on your employer’s retirement plan to fund your golden years may just not be enough anymore,” Walsh said. “Contributing to an employer plan such as a 401(k) is a great start for retirement saving, but the more you can save for the future, the better.”You should also be contributing to a private retirement plan like a traditional or Roth IRA, he said. If you’re not, you may not be maximizing your retirement savings.Huddleston described experts as saying your investment portfolio should include various asset types and be structured to outpace inflation, with a mix of stocks to maintain growth and fixed income like bonds to guard against market volatility.