The 2016 Olympic Games kicked off in Rio this past weekend. Even if you’ve been hiding under a rock for years, you understand the idea of the Olympics. Top-tier athletes from around the world gather to compete in their respective sports, or games, to achieve ultimate victory for themselves and for their country. What could such an event have in common with your retirement preparation? Several things, actually, but we’ll focus on just three.
For most athletes competing in the Olympics, their overall goal is to leave the Olympic arena with a gold medal. However, this larger goal is most likely comprised of smaller, more specific goals. Just as a track and field athlete makes time and distance goals to keep them focused during training, you should define a goal for your retirement savings.
Many Olympians set their goals and begin training years before they actually compete in the Olympics. Their commitment is vital to winning the gold. Setting your retirement savings goal as early in your career as possible and saving toward that goal is a key component in determining whether or not you’ll reach your gold medal in retirement. Use the following steps as a guideline for your retirement savings strategy:
Step 1: Begin saving as soon as you are eligible to contribute. Saving a little is better than not saving at all.
Step 2: If possible, contribute enough to take advantage of the full match offered by your employer.
Step 3: Increase your contributions slightly each year, or as you receive raises. Most recent studies show that you need to be saving at least 15% of your annual income each year to win the retirement savings race.
For those of you under age 40, a good rule of thumb is to save two times the amount of your annual pre-tax salary by the time you reach the age of 35. For those of you closer to your retirement date, a general goal many savvy savers use is to have eight times their current salary socked away for retirement by the time they retire. So, if your annual salary is $80,000, aim to save $640,000 for retirement. However, needs will differ from person to person. A great resource is Nerd Wallet’s retirement calculator. Their calculator takes into consideration your current age, desired retirement age, current income, contributions and your savings already earmarked for retirement! Use this template to set a solid goal for your retirement savings.
Now that you have your goal for your retirement savings, let’s create a plan to get you there. Olympians follow strict, regimented training plans for years in preparation for the Olympic Games. Your training plan will be your budget, which should include saving for retirement. Once you’ve set your goal, break it into smaller, less overwhelming increments. Review your goals and your progress each year to determine if you need to make changes to your “training” plan.
For your training plan to work, and to succeed in your race to win your gold medal, you should review your current budget as well as your estimated budget in retirement. Imagine what your retirement years look like. Think about how you want to spend your time and what those activities might cost. Write down the expenses you’ll have in your dream retirement lifestyle, and get an idea of the savings you’ll need to cover those expenses. Compare these expenses to your current budget and note key differences. Keep in mind, while expenses like housing and transportation may decrease, health care expenses will increase. According to a recent article by Emily Brandon, senior editor for Retirement at U.S. News, health care costs can increase from $3,900 for workers ages 50 to 64 to $5,000 for retirees age 65 to 79.
Make sure to factor in these changes in your expenses!
Whether competing in a team sport or individually, Olympians have a team of coaches and family to help them win the gold medal. You should also build a trustworthy team to help you reach your retirement goal.
First and foremost, include your spouse in your retirement planning. Their income, savings and health care needs will heavily influence your retirement savings needs.
Second, discuss your retirement savings and goals with your financial advisor. Your advisor will help you stay on track during times of surprise, surplus, and strife. Use their expertise to drive your savings strategies, stick to your training plan and reach your overall retirement goal!
If you’re concerned about how ready you are for retirement, start building your team! Contact your financial advisor today and begin training to reach your retirement goals.