With inflation on the rise, manic market behaviors, and market volatility that doesn’t seem to be ending soon, retirement savers already have enough to think about.
But even if things were more normal, your retirement game plan should still be built on a solid foundation. Without that foundation, the above-mentioned uncertainties can more easily wreak havoc on your golden years.
So we’re going to take a closer look at five ideas you can consider adding to your retirement game plan. (Of course, if you don’t have a plan yet, there is no better time than the present to make one.)
Let’s get started…
#1: Don’t delay, start today (and save more than you think you should)
It doesn’t matter if you’re in your 20s, 30s, or beyond. Until you take the leap into retirement, saving what you can towards that retirement right now prevents headaches that might be unavoidable later.
This bit of advice comes from Carrie Schwab-Pomerantz, President of the Charles Schwab Foundation:
the later you start saving for retirement the more you’ll have to put away each month in order to sustain yourself once you retire — if you start saving in your 20′s, you’ll put away 10 – 15% of your income but if you start in your 40′s, you may have to save up to 35% of your income.
Andrew Meadows, senior vice president at Ubiquity Retirement + Savings, suggests that as your income increases, it’s a good idea to consider saving more. “You know you’re on the right track when you’re able to contribute over that match and start getting closer to maximizing how much you put away,” Meadows says.
Matt Rogers of eMoney Advisor recommends saving at least 15% of your pretax income for retirement (and another 5% for emergencies).
Fidelity has published some benchmarks for retirement savings goals based on your age that are widely accepted:
- 3x your annual income by age 40
- 6x your annual income by age 50
- 8x your annual income by age 60
- 10x your annual income by age 67
Regardless how much you’re saving, if you don’t watch your spending, too, you’re setting yourself up for failure.
#2: Keep an eye on your expenses
As you get older, it’s fairly likely your expenses will go up. These expenses could include some larger ticket items, like your children’s college years.
At least this is something you can plan for. Don’t expect your children’s degrees to cost the same as your own, though… College tuition rises twice as fast as inflation.
As you grow older, you may be spending more on some things you just didn’t consider major expenses. Near retirement age, healthcare expenses may present a burden:
A 65-year-old couple who retired in 2020 can expect to spend $295,000 in health care and medical expenses throughout retirement. This doesn’t include the additional annual cost of long-term care, which in 2020 had a median cost of $105,852 for a private room in a nursing home, according to long-term care insurer Genworth. [emphasis added]
Of course, health and education aren’t the only two expenses to keep your eyes on. You may find it useful to create a list of expenses, and update that list from time to time as your situation changes.
Speaking of changes…
#3: Familiarize yourself with the nuts and bolts
As any accountant can tell you, tax laws change constantly. Every year, politicians and the IRS churn out legislation and regulations we have to keep up with. We ignore these at our peril.
For example, the limits on IRA catch-up contributions for 2021 changed, as summarized nicely here:
The standard contribution limit for a 401(k) in 2021 is $19,500 while the catch up clause allows for an additional $6,500 in savings for those ages 50+, for a total contribution of $25,000. For a Roth IRA, the standard contribution limit is $6,000 but the catch up limit is $7,000.
“Catch-up contributions in 401(k)s are there because you might not have saved enough in the 20 years prior,” Ubiquity’s Meadows added.
Now, you probably don’t need to hire a financial planner or a CPA to stay up to date on the nuances of retirement savings changes. If you’re willing to commit to a regular review of the available resources (the SEC has an entire website devoted to this), you’ll most likely stay aware of the big-picture changes.
Remember, though, as tempting as it might be to over-focus on the nuts and bolts, don’t neglect the big picture…
#4: Re-examine your plan (and make necessary adjustments)
Your retirement plan isn’t a “set it and forget it” proposition. As you get closer to retirement age, your plan may require adjustment from time to time.
For example: Before collecting Social Security benefits, Matt Rogers, director of financial planning at eMoney Advisor, recommends a Social Security benefits estimate.
“This will help set expectations and make plans more realistic,” Rogers notes.
If you’re off-track, you have some options. You might be able to save more, or make a catch-up contribution. You might be able to postpone retirement. You might be able to make a career change, like winning a promotion or switching employers, that brings in more money. You might be able to turn a hobby into a stream of income.
When examining a retirement game plan, it could also be a good idea to take a look at the “buckets” you’re adding your hard-earned retirement funds into…
#5: Consider your risk tolerance and diversify
Even if inflation wasn’t running rampant (over 5% and rising), it would still be a good idea to diversify your retirement funds. Diversification works in several ways:
Diversifying the types of retirement funds (IRA, Roth, 401k) can have tax-deferral benefits both before and after retirement
Diversifying the types of assets you own is crucial to success. So crucial, in fact, the SEC calls it The Magic of Diversification:
The practice of spreading money among different investments to reduce risk is known as diversification. By picking the right group of investments, you may be able to limit your losses and reduce the fluctuations of investment returns without sacrificing too much potential gain.
After all, no one wants all of their eggs in one basket.
Principal recommends an annual check to confirm your retirement accounts match your risk tolerance and goals. That’s especially smart when the stock market is both volatile and extremely overvalued, and after-inflation interest rates are negative. Because, in the SEC’s words, “you may be able to limit your losses and reduce the fluctuations.”
That’s why Nobel Prize winner Harry Markowitz said, “Diversification is the only free lunch in investing.”
Even seemingly conservative investors like Walter Updegrave recommend allocating “5% to 10% of your portfolio to gold and invest the rest in a diversified portfolio of stocks and bonds.”
Former congressman Ron Paul thinks of diversification with gold as insurance: “I would think people who are in it for the long term, it looks to me like this would be a very good time to buy … I look at gold as insurance.”
So when you sit down and work on your retirement saving plan, consider each of these five ideas as starting points (if you’re not using them already). Then consider what investment vehicles you are using, and whether diversification with physical gold and silver would be right for you.
But whatever you decide, do it now. You can always fine-tune your retirement plan down the road. Don’t let crafting the perfect retirement plan prevent you from making good enough savings decisions today.