By far, the number one question I receive as a financial educator is, “How much do I need to retire?” Sometimes people will even blurt out this question immediately, as if there’s one magic number I can share with them. The truth is, I’d venture every single person I meet has an entirely different number.
That’s because a lot of different factors come into play: What age do you plan to retire? How long do you think your retirement will last? Where will you live? Will you continue to work? What other income sources (like Social Security or a pension) do you have to work with? Do you plan to live off the same salary as today, or can you live off less?
Few of us can answer most of these questions with certainty. I have a guestimate of what age my husband and I might retire: age 70. I have a feeling we will both continue to work in some capacity … but who knows if our health will allow that? Working with people preparing for retirement every day means sometimes I daydream of what it might be like for me, but I know A LOT can — and will — change in the next 38 years.
So how do you even begin to wrap your arms around this big goal? Whether you’re 10, 20, or 40 years from retirement, here are a few suggestions:
1. Pay Attention to the Percentage: I encourage you to focus less on the end destination and more on the journey to get there — starting with this question: What percentage of your paycheck are you putting in today, and how can you grow that percentage? Fidelity recommends saving at least 15% of your income between your and your employer’s contributions. I get it: 15% can sound like a lot, especially if you’re only putting in a percentage or two today. This is something you can grow toward. Make a goal of increasing your percentage by one point per year. I doubt you’ll notice that subtle change.
Tip: If you’re currently putting in a dollar amount from each paycheck, why not contribute a percentage instead so your contributions will increase as your paycheck increases? To jumpstart the switch, figure out what percentage you are currently contributing by dollar amount and round up.
2. Lean Into Rules of Thumb: Like I said, focusing on “your number” isn’t necessarily all that helpful since there are so many unknowns. But if a numerical target will help you stay on track, I really like Fidelity’s rule of thumb to save 10x your final salary by age 67.
Tip: 10x your salary can still sound like a mountainous goal. Check out the way Fidelity breaks this down by specific ages so you know your mile markers on the road to retirement.
3. Don’t Underestimate What Your Employer Can Do: I can’t emphasize this enough: If you aren’t meeting your employer’s match (if you have one) then you are leaving free money on the table. It may not sound like much today, but over 30 years that consistent contribution can make a big impact.
Tip: If you work for a smaller company and your employer doesn’t currently offer a match (or even a retirement plan for that matter), ask about this! I did this in my second job and I was able to get the company to start offering a retirement plan to its employees with a 3% match.
4. Get Your Priorities Straight: It’s easy to put retirement on the back burner when you have more pressing financial goals vying for a place in your budget. Resist the invitation to give into the urgent at the expense of the important. No matter what stage of life you are in, there will always be goals that feel more pressing — so pay your future self first. Instead of thinking about retirement as an extra goal outside of your regular budget, think about it as a monthly bill that isn’t negotiable.
Tip: I often see people struggle with whether repaying debt or saving for retirement should be a higher priority. If the debt you’re repaying has an interest rate of 10% or more, you might want to tackle that first. But if your interest rate is lower (say, a federal student loan with a 4-7% interest rate), I’d suggest setting up a retirement savings plan and a student debt repayment plan that you can work on side by side. Curious why? Check out this blog article.
5. Today Matters More Than You Think: Sometimes people think it’s better to wait until they can afford to put 5-6% of their income toward retirement savings, but it’s the opposite. Even if you can only contribute a small amount today, it can make a real difference over time with the power of compound interest.
Tip: Instead of delaying saving for a future date, commit to putting something aside today — even 1% is more than nothing. For most people, this will have less impact than one nice dinner out per month.
6. Get to Know Your Investments: This NerdWallet article can help you understand your current investment mix and see if it’s right for your goals. If your company offers you free or reduced price access to financial planners, take them up on that offer. Generally, this conversation takes just 15-20 minutes.
Tip: It’s good to check in at least once per year to see if your investment mix is still a good fit for you — put an annual reminder on your calendar so it doesn’t fall off your radar.
7. Beware of Fees: Investment fees can cost you more than you might expect over time. There are lots of different types of fees and/or commissions that you may be paying, and they vary widely across the industry. Can’t see your fees? Don’t be afraid to ask. Be sure to ask about the entire cost, not just the investment management fee.
Tip: Although working with a financial advisor or planner may come at a cost, it may be worth the value. Be sure to ask up front about their fees and any commissions they might receive from your business. Also, ask what you can expect to walk away with after working with them. If you aren’t comfortable, don’t proceed.
This Thursday, Sept. 19, I’ll be going live on Instagram and Facebook at 8pm Central to dive into a really important (and often neglected) topic when it comes to investing: fees. We’ll take a look at what you might be charged and what you can expect for those charges. You won’t want to miss this one!
In this month’s Date Night Club, I’m leading couples through a retirement savings audit so they can get a clear picture of where they are today and what they can do to improve their future outlook.
For just $9.99/month, you can access this month’s date night and all of the previous dates. You invest 45 minutes per month; I’ll help you transform your relationship, deepen your intimacy, and connect your money & your values to create a more fulfilling life together. Learn more and join today!
Speaking of dates? For those of you who are local to Twin Cities, join me on Oct. 19th for my first Love & Money event. Over mimosas and brunch goodies, I’ll help you break the ice, talk honestly about money with your partner, and find your money superpower together. Reserve your seat!