As we make it through another year of higher taxes and rising inflation, we ask ourselves, “Will my retirement savings be enough?”
If you are close to transitioning to retirement, $2 million may be a realistic savings goal. In fact, the average worker expects to need roughly $1.9 million to retire comfortably, a survey found.
If you’re on an average salary, saving that much money may not seem realistic. However, with the right strategy in place, it’s easier than you might think to become a retirement multimillionaire.
When trying to calculate the right savings number, $1million used to be the “magic number”. However many recent events – mainly speaking COVID-19 – has many Americans concerned their savings strategy needs a revamp to keep up. As a result of the pandemic, forty-one percent of survey respondents made changes to their 401(k) as a direct result of the economic impact of Covid-19. Of the 41% who acted, 14% rebalanced their portfolio and 12% increased their contribution rate.
The silver lining? Times like this make people a little more engaged and proactive about their financial future. If you are one of the many Americans that aren’t investing enough to reach your savings goal – and the income it brings – here’s what you should do in 2022.
Retirement is becoming more expensive. To find out if your retirement income will be enough, you have to start by estimating your retirement expenses. There are various formulas to estimate retirement expenses, all of which are rough guesses at best.
One frequently used rule of thumb for retirement spending is known as the 4% rule. It appears to be a relatively simple rule. Just withdraw 4% of your nest egg every year of your retirement and guarantee yourself a lifetime of income.
Today, however, with changed market conditions and lower projected returns for stocks and bonds, the 4% plan doesn’t seem to be cutting it for retirees.
The newer well-known rule is that you’ll need about 80% of the amount you spend going into retirement. That percentage is based on the fact that some major expenses will go down in retirement—commuting costs and retirement-plan contributions, to name two. Of course, other expenses may go up (vacation travel, for example—and, inevitably, healthcare).
By using our free, online financial calculators, you’ll get a better understanding of where you’re falling short and/or overspending in order to reach your magic number. A good online retirement tool can make crunching decades of numbers and assumptions a breeze. The best tools allow you to understand the assumptions that are being made and to change those assumptions easily. From monitoring Investments to Cost of Inflation, check out the full list of financial calculators here.
Even if you’re not wealthy, it’s possible to save $2 million or more. Your saving strategy can make or break your retirement plans, so follow these three steps to help make your retirement millionaire dream a reality…
1. Consider Your Timeline
Once you have a retirement budget in mind, the next step is breaking down your $2 million savings goal. This is as simple as estimating how long you have to save, based on your current age and when you hope to retire. If you’re getting a late start, say at age 35 instead, you’ll need to decide whether retiring at 65 with $2 million is a realistic goal. Having 30 years to save means you’d need to increase your portfolio by $66,666 a year on average. If you don’t think you can do that at your current savings rate and rate of return, then you may need to consider waiting until 70 or 75 to retire in order to hit the $2 million mark.
If you’re having trouble setting money aside for retirement, try building your savings goal into your budget. Set your savings on autopilot by transferring a set amount from your paycheck or your bank account into your retirement fund each month. When saving becomes a priority, it will be easier to save consistently and stick to your plans.
2. Take Advantage of Tax Saving Strategies
Tax-advantaged plans are the first place you may look to start saving for retirement. The two common retirement accounts that allow people to minimize their tax bills are tax-deferred and tax-exempt accounts. Both types of retirement account minimize the amount of lifetime tax expenses someone will incur, which provides incentives to start saving for retirement at an early age.
With a tax-deferred account, tax savings are realized when you make contributions, but with a tax-exempt account, withdrawals are tax-free in retirement. The most common tax-deferred retirement accounts are traditional IRAs and 401(k)s. Furthermore, popular tax-exempt accounts are Roth IRAs and Roth 401(k)s. Tax-exempt accounts are useful if your income will be higher in retirement than during your working years. An ideal tax-optimization strategy may be to maximize contributions to both types of accounts.
3. Invest in the Right Financial Advisor
Time is your most valuable resource when it comes to saving for retirement, so the sooner you begin investing, the easier it will be to reach your $2 million goal. But where and how do you even start?
Investing in the stock market is a fantastic way to build wealth, and you can earn significantly more than if you were to park your cash in a savings account. However, it is important to choose the right investments, because not all stocks are created equal. This is why you should consider talking to your financial advisor about strategies you can use to save $2 million for retirement. In fact, industry studies estimate that financial advice can add between 1.5% and 4% to account growth over extended periods.
A 1-on-1 relationship with an advisor is more than money management. A financial advisor can help you with your financial planning so you can have peace of mind while pursuing your life goals. For most investors who choose to work with an advisor, advice is not just about investments. It’s also about helping you build a personalized plan around your full financial picture designed to help you pursue multiple goals, grow your wealth, and take care of the people who matter most to you.
By starting to save early in life, choosing the right investments, and continuing to invest in a reputable financial advisor, you can maximize your earnings and retire a multimillionaire.
At CKS Summit Group, we design, build, and manage custom retirement portfolios that are fully capable of simultaneously generating stable growth, increasing income, and preservation of principal throughout a client’s lifetime, with only limited downside market risk. Ready to hit – or even crush – your retirement savings goal in 2022? Contact us here to set up your complimentary strategy session today.
Here’s to a happy, healthy and prosperous New Year!