The worst time to realize you’re not on track for retirement is when you’re ready to retire.
Even if you’ve been saving an “appropriate” amount each month, it may not be enough to sustain your post-retirement life. There are a variety of factors that determine whether you’ve saved enough.
How early did you start?
Did you account for inflation?
Will you have enough of a cushion beyond the basics?
Retirement planning is an involved process. One that requires regular check-ins to make sure you’ll have the funding you want for your ideal life.
If you’re concerned you may not be on track for retirement, here are seven red flags to look for:
1. You haven’t calculated your income needs.
You can’t know how far you’ve come if you don’t know where you’re going. Calculate how much you spend each month, comfortably, to have a better understanding of what you might need when you retire.
Consider larger expenses as well, beyond what you’ll need to spend day-to-day. For example, you may want to move to a different city, or you could need a new car.
Additionally, remember that those expenses won’t be face value when you withdraw the money from your taxable retirement fund. Depending on your tax bracket, you would be spending over 20% more than the cost of the item, as you’ll be required to pay the corresponding taxes.
2. You haven’t thought about inflation.
While you’re calculating your post-retirement needs, don’t forget to account for inflation. If you look at a possible rate of 3%, that seemingly-small percentage can dramatically affect your results. Saving for retirement can span 30 years or more, so ignoring inflation rates could lead to disaster.
Imagine basing your current spending needs on prices in the 1960s, when a loaf of bread was $0.22. While this is quite a dramatic example, you get the idea. Ensure you have enough to cover the basics—based on what they will cost in your expected retirement year, not what they cost now.
3. You don’t know your approximate retirement year.
Having a target retirement year will help you calculate your income needs and account for inflation (saving you from red flags 1 and 2 on this list). You won’t know down to the minute, but having a year in mind will go a long way. Things change, and life happens, but giving yourself a hypothetical goal allows you to better assess where you stand.
4. You haven’t checked on your plan since you opened it.
The simplest way to see that your retirement savings are growing is to check on your fund regularly. It’s vital to have at least a general idea of how much money you’ve saved—and, more importantly, how much more you’ll need.
5. You have a high amount of debt.
The last thing you want to worry about post-retirement is a monthly debt payment. Having extraneous bills hanging over your head could compromise your financial well-being down the road. Create a plan to eliminate or make a serious dent in your loans.
If the decision comes down to putting money into your retirement savings or paying off debt, here’s a good rule of thumb:
If the interest rate on your loan is higher than what you would expect to earn in your retirement fund, make debt the priority. However, if the interest rate is lower, choose the retirement fund.
6. Your portfolio isn’t diversified.
Diversifying your assets based on type—stocks, bonds, and mutual funds, for example—will increase your earning potential. A financial advisor can assess your risk tolerance to help you determine which funds across which sectors will be the most beneficial.
7. You don’t have a long-term financial plan.
A retirement fund is one cog in the financial planning machine. Your savings decisions ultimately come down to your long-term goals. If you don’t have a plan, it’s challenging to stay on track.
To keep you on course for retirement, look to a financial advisor. An advisor will walk you through the big-picture items while assessing your financial health as a whole. It pays to have an ally who is also working toward your financial future.
Wherever you are in your retirement journey, Southwestern Investment Group can make the best of it. Our advisors approach your finances holistically, seeing that all of your assets and decisions are in alignment to achieve the best results.
Contact Southwestern Group today to learn more about how we can help you retire when you want with the money you need.
