by Beth Henary Watson
There are many demands on your money. The grocery store, the gas company, the auto finance firm—all must be paid so you can stay solvent. Your home requires maintenance and “needs” updated decor.
To prepare for a comfortable retirement, though, you must balance this barrage of current demands with the needs of your older self—whether that future is very distant or just a few years off.
I call this Retirement Triage: an analysis of your whole present situation, followed by a prioritization of what must be addressed to help supply you with as comfortable a retirement as possible.
Making the determination
We normally hear the word triage applied to emergency situations. Your first order of business is to determine whether you have a retirement emergency on your hands.
According to Fidelity Investments, a good rule of thumb is to have 8x your salary saved by age 60 and 10x salary saved by 67. For those younger readers, Fidelity suggests saving 4x salary by age 45.1 Obviously, we financial advisors might quibble with the particulars of these suggestions—our planning process here at Corner Post assumes spending is the key figure, not earnings—but truth is more than half of Baby Boomers have less than $50,000 socked away for retirement.
Here’s the complete breakdown of Fidelity’s age-based recommendations:
2x salary at age 35
3x salary at age 40
4x salary at age 45
6x salary at age 50
7x salary at age 55
8x salary at age 60
10x salary at age 67
Clearly, lots of folks need to take an honest look at their looming golden years.
If you are close to or exceed the above benchmarks, you still need to work toward your retirement goals, but you should breathe a little easier knowing you are making good progress.
Determine where the bleeding is worst
If your savings aren’t where they should be, look at your spending. Like a doctor at a disaster scene, survey your environment and address the worst problems immediately.
Where does most of your money go? Is it to your adult children or grandchildren? Does it go to a mortgage that’s too large, with too many years left on it, on a house that’s too big? Do you have a car loan or credit card debt that stresses your cash flow?
Where there’s too much bleeding, quickly applying a tourniquet can be a lifesaver. And while no lives may be at stake if you fail to save enough for retirement, there’s a sure threat to your quality of life.
Take steps to free up funds for saving by downsizing your home or trading in a vehicle and prioritizing debt payoff. Give notice to able-bodied adult children that they’re on their own.
If you have a major cash bleed like those just noted, don’t shrink from the big moves in favor of coupon clipping. BIG MOVES=BIG SAVINGS OPPORTUNITIES.
If you are able to locate $500 per month extra to save at age 55, that is $6,000 per year, or $60,000 by the time you’re 65, assuming zero growth. It’s not a mint, but it’s better than the alternative of doing nothing.
What caused the emergency?
News flash: The source of the typical retirement shortfall suffered by many individuals is lack of regular savings, likely over a long period. Companioned with long-term living at or even beyond one’s means, poor savings habits necessitate retirement triage.
While lots of crises may happen that derail a financial plan, including serious illness or early death of a family member, plenty of people who’ve had no life-altering personal emergencies find themselves behind in retirement savings.
Are you the critical patient in a retirement emergency? Better to triage now rather than later, when the prognosis will certainly be worse.
About the writer: Beth Henary Watson is an LPL Financial Planner with Corner Post Financial Planning. Contact her today for your retirement planning needs.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Citations:
1) Fidelity Investments, How Much Do I Need to Save for Retirement?, https://www.fidelity.com/viewpoints/retirement/how-much-money-do-i-need-to-retire
2) Time.com, 1 in 3 Americans has $0 Saved for Retirement, http://time.com/money/4258451/retirement-savings-survey/