You don’t have to be wealthy or even have a savings account to create an estate plan. However, most people with a healthy estate take good care to ensure they save enough for retirement.
Like estate plans, retirement plans have many different facets, so a savings or investment portfolio is just one of the many things financial planners evaluate when helping clients prepare for a work-free future. As estate planning professionals, our work intersects with financial planning, and we’ve learned that clients experience a significant piece of mind when both their estate and retirement plans are in place.
5 Signs You’re Saving Enough For Retirement Track
Having enough to securely and comfortably retire is one of those things everyone craves. However, like estate planning, the water often feels murky and choppy. Perhaps they even scare you because there are so many unknowns and because life may have a way of eating up your extra funds before you can squirrel them away.
However, there are clear signs that you’re on a healthy retirement track. We’ll share five of them here and what you can do if you feel you’re not as “on track” as you’d like to be. Of course, all of these scenarios are based on the vision of retiring at age 65.
You have a fee-based financial planner you trust
Financial planners and estate planning attorneys share a specific gripe: The clients who need us the most never come to see us.
Most people think you must be rich before you need an estate plan or hire a financial planner. This is not the case at all. In fact, the less money you have, the more you probably need a financial planner – especially if you want a fulfilling retirement.
Fee-based financial planners charge by the hour and don’t have any ulterior motives (like making money off your investments) for steering you anywhere other than your values-based goals. A single consultation with a Bay Area fee-based financial planner provides you with a budget, savings, and financial plan. Annual revisions keep you accountable, on the right track, and with a clear path forward.
You’ve reached (or are close to) age-specific retirement savings benchmarks (35, 50, & 60)
The financial wizards at T. Rowe Price use an algorithm to help people benchmark where they’re at – and should be at three critical ages: 35, 50, and 60.
According to them, by the time you reach age:
- 35: Your savings should be at least 1 to 1.5xs your current salary. If you are 35 and earn $60,000, your retirement savings accounts should add up to $60,000 – $90,000.
- 50: Your savings should be 3 to 6xs your current salary.
- 60: Retirement savings should add up to 5.5 to 11x your current earnings.
If you are on par, good for you. If not, there is no need to feel bad. But it’s time to make some changes. Ideas for quicker retirement savings include:
- Taking advantage of the full employee 401K or other retirement savings matches.
- Start an IRA if you don’t already have one, and then strive to add the maximum contributions each year.
- If you receive birthday or holiday money from friends & family, use a portion (or all of it) to pad retirement savings.
- Add a little bit more each month to retirement/savings accounts. When it comes to compound interest, every little bit helps.
- Resist the urge to purchase a new car when you’ve paid yours off. Split that “already budgeted” amount between retirement and rainy day savings accounts.
You don’t need the entirety of Social Security earnings
If you’re relying on social security earnings to fund the bulk of your retirement, you won’t have much to live on. Social security payments should subsidize, rather than cover, retirement spending. The better plan is to ensure you’ll have enough to pay at least 80 to 90% or more of your projected living costs via retirement savings, leaving social security to add a little extra.
The 4% rule is on your side
The 4% rule is one that retirement planners use to determine whether clients are ready to retire or not. This rule states that retirees should only spend about 4% of their total earnings each year. So, you take all of your savings (401ks, investment portfolio, IRAs, etc.) and subtract 4%. Then divide that by 12. This gives you your “monthly income.” Is it enough to cover your financial needs? If so, you’re on your way to retiring.
Again, your social security benefits should be a bonus on top of that rather than factored in for a significant portion of it. Your financial planner is your ally in establishing benchmarks and the figures you need to aim for with respect to your retirement goals, health status, etc.
Don’t forget to factor in health insurance costs and any known medical costs – including prescription meds – when running the total numbers. For most American retirees, retirement means losing any employer-paid benefits. That means you’ll be paying out of pocket for anything not covered by Medicare and/or supplemental insurance policies.
You’re living debt-free (or close to it)
The ideal retirement is debt-free:
- Your house and any other properties are completely paid off, OR you’re selling it and downsizing into a place you can pay cash or a very modest rent.
- You have no credit card debt.
- Any cars or toys are paid off, OR you’ll be downsizing to get payments to a minimum.
If the savings benchmarks for ages 35, 50, and 60 caused you to panic, don’t. Paying off debt is a tremendous leap in the right direction. You’re already budgeting for things like student loan payments, minimum credit card debts (get those paid off first!), and car payment(s). Once you’ve paid those off, we recommend putting all or a significant portion (at least 50%) of those payments into the retirement fund.
Planning for Retirement & Creating Estate Plans Provide Invaluable Peace of Mind
Knowing you’ve saved enough for retirement provides invaluable peace of mind. The estate planning professionals at Tseng Law Firm can provide sound referrals to some of the Bay Area’s most trustworthy and experienced financial planners. Schedule an estate planning consultation, and let’s get you on the path to a secure and worry-free future.