Take Stock of Your Financial Situation
Take charge of your financial future by analyzing your current expenses, much like you would when building out a budget. How much is coming in versus going out? After that, evaluate your assets, investments and liabilities.
Once you’ve finished, use the information you collected to calculate your retirement savings gap, which is the amount you can expect to have when you retire in relation to how much you think you’ll need to live the kind of life you desire.
Create a Plan, Execute It Accordingly
As a general rule, aim for a retirement monthly income of roughly 80 percent of your pre-retirement salary. This means if you make $10,000 a month, you’ll want $8,000 a month or more coming in once you’re retired. Of course, this figure is flexible based on lifestyle, travel, personal health, and other factors, and it can be adjusted down or scaled up, as needed.
To get more personalized, based on your findings from calculating your retirement savings gap, set realistic expectations around your retirement goals. To do this, you’ll want to know what retirement spending and income will look like for you. A lot of this will require estimating and making educated guesses at what future income streams will look like. To start:
- Estimate post-retirement expenses: Health care and insurance, housing, insurance and related expenses, property taxes, recurring maintenance, and basic necessities like groceries and clothing
- Identify potential sources of retirement income: Social Security, Medicare, 401(k), an IRA, current savings
According to survey data from the U.S. Census Bureau, the average retirement age in the country is 63 years old. For those in their 40s or 50s, full retirement benefits from the government become available at age 67, but that doesn’t mean you can’t retire before reaching that age. It simply means you can’t count on maximum Social Security benefits before turning 67.
To help with your financial projections, DCU has calculators you can use that will help prepare you for retirement, including one for how much you should be saving.
Max Out Your Retirement Accounts
To retire when you’d like, maximizing your retirement accounts is critical. If you have a 401(k) or IRA that involves employer matches, make sure you are maximizing your contributions. For example, if your employer matches dollar for dollar up to 4 percent, be sure you’re contributing a minimum of 4 percent to qualify for the full match. If you aren’t setting aside enough money to get the employer match, that's the equivalent of throwing away free money.
There are also tax advantages available to individuals at certain age thresholds. For instance, individuals age 50 or older may contribute an extra $1,000 to an IRA than they would before that point. For 2024, this means individuals 50 and up may contribute $8,000 annually.
If you’re not currently able to max out your employer-sponsored retirement plan contributions, put yourself on a budget to trim expenses so you can start meeting that goal as soon as possible.
Diversify Your Investments
Beyond your retirement accounts, there are other avenues to save and invest. Aside from your retirement accounts, what does your investment portfolio look like? You should be checking it on a recurring basis to ensure you’re satisfied with your stocks, bonds and other investments.
As you get closer to your desired retirement age, be sure to balance risk versus return. As you age, your investments should get more conservative. You don’t want to take risky chances that could severely undercut your retirement plans or even set back when you plan to retire.
Federally insured IRAs
DCU offers three types of IRAs to choose from for retirement savings:
- Certificate IRA
- Money Market IRA
- Savings IRA
Each option has no monthly fee, and the Certificate IRA has terms available from 3 to 60 months, offering short-term flexibility and the ability to maximize long-term savings.
Home Equity
If you have a mortgage, will it be paid off in time for retirement? Do you plan to stay in your home once you’re retired? Having a mortgage can be a huge drain if you’re on a fixed income, making it ideal to pay off your mortgage before retiring.
Owning a home can provide valuable liquidity during retirement. For example, it may be helpful to get a home equity line of credit (HELOC) to pay for major expenses, such as home improvements, as you borrow against your home’s equity.
Catch Up on Retirement Savings With DCU
If you’re feeling a bit behind on your savings, it’s best to take immediate action so your retirement goals don’t get held up. To close the gap as quickly as possible, make consistent, maxed-out contributions toward your retirement account(s) and stick to your plan.
DCU, a not-for-profit credit union, is here to support its members with resources, along with retirement and savings accounts. Grow your nest egg with federally insured accounts that offer high interest rates.
