Increasing life expectancies mean you’re likely looking at a longer retirement than the previous generation of workers.
According to the U.S. Department of Labor, the average person spends 20 years in retirement, while others put the figure at 30 years or longer. And financial advisors generally suggest you’ll need 70 to 80 percent of your annual pre-retirement income to maintain your standard of living.
Will your retirement savings be up to the test? Here’s what to consider.
• Picture your retirement. Whether you’re planning to travel extensively or kick back by a lake, your income will need to support your desired lifestyle. Once you decide how you’d prefer to spend your retirement days, you can map out a strategy that could help get you there.
• Assess your finances. Take a realistic look at your current financial position. Note such things as how much you’ve saved, the debt level you’re carrying, the amount of life and disability insurance you carry and what you have available in emergency funds.
• Increase savings. It’s never too early — or too late — to add to your savings. If you’ve got plenty of time before retirement, save as much as you can to take advantage of interest compounding. If retirement is near, look into catch-up contributions, which can help improve your financial picture. Even small gains matter: Increasing your retirement contribution by one to two percent each year adds up over time.
• Knock out debt. Most financial professionals recommend keeping debt level manageable: no more than 35 percent of your income. Getting rid of high-interest debt such as credit card balances is always a good idea. And before you retire, you’ll want to eliminate as much debt as possible so that you aren’t servicing it with your savings. Consider paying off your home before you stop working, too.
• Monitor your plans. Review your retirement plans with a financial professional at least annually to see that they still work for you. (It’s also a good idea to review your insurance coverage periodically and any time your life changes, such as when you marry or have a baby.) As you near retirement, you might decide to shift some of your savings to income-producing investments, such as annuities. Or, to keep your nest egg intact, your plan may be to continue working a few years more into retirement.
Information provided by Glenn Waterhouse, State Farm Insurance, 5441 N.W. 86th St., #100, Johnston, (515) 223-5566.