Top 3 Ways to Get Retirement Right

Successful retirements take years of financial planning and saving diligence. Far too many people make bad choices when it comes to retirement. Here are three ways you can help set yourself up for a successful financial future.

According to a study by David Blanchett, head of retirement research at Morningstar Investment Management, a handful of decisions can make the difference between saving enough for a long retirement — or being in financial trouble in your latter years. He notes:

“Knowing when we plan to retire helps determine how much money we need to save and our standard of living in the meantime. Unfortunately, our retirement plans are often wrong, and that can wreak havoc on our finances.”

In his whitepaper, “The Retirement Mirage” Blanchett discusses that choosing when to retire is one of the single most “important financial decisions we make in our lives.” Basically, Americans need to be more informed and make better decisions for retirement planning as many of the built-in workplace retirement options, such as pensions, are not available today and retirement planning is largely an individual effort.

Here are three key moves that can lead to a better retirement outcome:

Retirement Planning Moves That Set You Up for Success

1. Retire Later

Americans are retiring early for any number of reasons, including health decline and caregiving responsibilities. It’s important to be cognizant of the fact that an early retirement can impair long-term retirement prosperity and success. In fact, one important financial principle is the knowledge that increasing saving over time will build a bigger nest egg.

“Despite our intentions,” Blanchett notes, “many Americans retire earlier than planned. For example, someone who expects to retire at 65 may be more likely to actually retire at 63. This happens for a variety of reasons—including health issues and job changes—but the impact can be severe: fewer years of saving combined with a greater need in retirement.”

Retirement age has a lasting impact on our ability to have a comfortable retirement. Blanchett discusses how there are not only financial, but also emotional implications. “Less obviously, retirement shapes our pre-retirement behavior long in advance of retirement itself,” he notes. It makes sense; you can enjoy your retirement more if you have more funds to spend on living an entertainment in your golden years.

2. Save More

Compound interest on larger amounts over time reap more savings, bottom line. The concept is simple; saving more over a longer period of time sets you up for more financial success.

Ramp up your retirement plan contributions to get more savings as retirement approaches. Many Americans gradually increase retirement contributions from 6 and 10 percent to 20 percent of their income.

Fortunately, if you’re over 50, you can save an additional $6,000 annually as a “catch-up” contribution to your 401(k), 403(b) or 457 plan. That’s in addition to the $18,500 yearly maximum you can sock away.

Another idea is to invest in a small group of index mutual funds that cover global stocks and bonds through your retirement plan. If you don’t want to bother with picking individual funds, you can invest in pre-set portfolios called ‘target date’ portfolios.

There are also guaranteed annuities, individual retirement accounts and other vehicles outside of your employer-sponsored plans. Just make sure your overall portfolio risk is appropriate for your age and profession. An expert financial advisor can help your make educated investment decisions for your unique financial situation. Blanchett discusses:

“Buying guaranteed income when appropriate, derisking investment portfolios, working in retirement, and a host of other factors still apply. But they should not distract individuals and their advisors from setting aside enough income throughout their working lives to reach their retirement goals.”

3. Plan Ahead

Like anything, planning is key for success.

Use online tools to see how much you should be saving. A helpful free tool is ES Planner Basic to help you do the math to get ballpark estimates for your investment time horizon. Blanchett discusses:

“Retirement-planning tools can help people estimate the likelihood of reaching their desired retirement income. Based on information such as current salary, accumulated savings, savings rate, years to retirement and projected investment returns, these tools can simply and powerfully illustrate the levers that investors can pull to help improve their chances of retirement success.”

Financial planning, goal setting and strategic saving with portfolio management are all important steps you can take to secure a successful retirement. Connect with an expert financial advisor or fiduciary to get started today.