The average life expectancy in America is nearly 80 years. However, many people live well beyond that age. Given that the average retirement age is 62, most Americans will spend 20 years or more in retirement.
According to Transamerica, the median retirement savings among Americans in their 60s is $172,000. Experts say seniors should have about eight times their annual salary saved for retirement. If your annual income is $50,000, you should have at least $400,000 saved for retirement.
Given these numbers, it’s understandable why only 27% of seniors in America are more than somewhat confident about having enough money to retire. However, you can do a few things to catch up on your retirement savings and better manage your savings.
Take advantage of tax-advantaged retirement accounts
There are several options for your retirement savings, most of which are tax advantaged to help your money grow faster.
For example, most working Americans have a 401(k) plan with their employer. According to Statista, nearly 80% of Americans in 2019 had a 401(k) account. The same study showed another 36% to 39% had an Individual Retirement Account (IRA).
If you have a 401(k), you can still tuck away up to $6,000 in an IRA, more if you’re making catch-up contributions. You can invest pre-tax dollars in your IRA, so you save money now while saving for retirement.
Health savings accounts (HSAs) are a frequently overlooked way to save for retirement. Money you save in an HSA is triple tax-advantaged and you can use it for qualifying health expenses until you turn 65, and for anything once you’re age 65 or over.
Hire a professional.
Financial advice is easy to find on the internet, but most people benefit from in-person expert advice as they plan for retirement.
Consider a retirement advisor early in your retirement planning to make sure you have all of your ducks in a row. Financial advisors charge differently for their services, however, so make sure you understand how you’ll be billed before you make an appointment.
Have a retirement savings drawdown strategy.
You can pay higher taxes and penalties if you withdraw your retirement funds too soon. In most cases, penalties apply to IRA withdrawals prior to age 59-1/2. Make sure you know the rules for each of the retirement savings accounts you have and work with a professional to time your withdrawals. You can minimize your tax liability and other financial penalties if you optimize your drawdown strategy.
Don’t rely on Social Security as your primary source of retirement income.
Many seniors expect Social Security to be their bread and butter in retirement. However, t the average Social Security payment in 2020 is $1,503 per month. If you’ve been making double that pre-retirement, you’ll be in for an unpleasant surprise.
According to Statista, nearly 90% of seniors polled in 2018 expect Social Security to be their primary source of income in retirement. If that’s you, you might want to rethink your retirement lifestyle or double down on your savings and catch-up contributions. Also keep in mind that the longer you postpone your Social Security benefits, the larger your check will be. You can earn annual increases up to age 70 if you delay Social Security.
Budget. Budget. Budget.
There is no easier way to drain your retirement savings than by failing to follow a budget. Spending money here and there without tracking it is a sure-fire way to run out of savings. It’s one reason more seniors are working well past retirement age.
You should create a budget that includes s all the expenses you’ll have in retirement, such as healthcare, housing, travel, gifts, and home repairs and maintenance.
Retirement should be a joyful time, not a stressful one. The better you plan for your retirement expenses, the more prepared you’ll be to enjoy your golden years.