Are you traveling down the retirement road without a map?
According to a recent Retirement Confidence Survey conducted by the Employee Benefit Research Institute (EBRI), only 46% of workers have completed a retirement needs calculation – the basic planning step that can help business executives determine how much money they are likely to need when they transition to retirement and how much they need to save to meet that goal. More alarmingly, only 13% were confident about having enough money for a comfortable retirement.
Chart Source: Employee Benefit Research Institute and Matthew Greenwald & Associates, Inc., 2013 Retirement Confidence Survey
In today’s volatile landscape, you must be knowledgeable and create a plan for your long-term financial health. Note three key points in building a roadmap:
1. Clarify your goals. Where do you want your finances to be when you retire? This is a process you can do yourself or with the help of a financial planner. First, you’ll want to take a snapshot of your current situation, how much is coming in versus how much you spend. You need to assess your human capital – your resources, skills, and long-term career and education goals. You’ll also want to consider your financial capital and risks such as insurance and estate planning. This retirement needs calculation will help you determine sooner rather than later if you have a retirement gap.
2. Create an action plan. Now that you know where you want to be, draft your own roadmap for how to get there. Maybe you need to save more each paycheck, be in the workforce longer or have a part-time job after leaving full-time employment. Know what is necessary to achieve your plan, regularly review it and make adjustments if needed.
3. Take Action. The EBRI survey also found that workers who have done a retirement needs calculation tend to be considerably more confident than those who have not about their ability to reach their goal. Consider the story of John and Steve. Steve has no real retirement plan and saves money when it’s available. Steve grudgingly participates in his company’s 401(k) plan but only at the minimum amount. On the other hand, John uses his knowledge and saves a planned amount from each paycheck. John allocates money to his retirement plan to qualify for his company’s matching benefit.
Both fellows are smart to save money over the long term, but only John controls his plan and accumulates the correct amount of money for his future. Steve will likely be constrained to live on only what he’s saved, while John can live the lifestyle he planned.
Don’t get stuck on the retirement road without a map. Define your goals and build a plan NOW, take control and implement your plan. Perhaps most importantly, stick with it!