By: First Bank Wealth Management

If so, you are not alone. A recent survey found that saving enough for a comfortable retirement is the top source of financial stress, even for Millennials. Worries about retirement surpassed concerns about job security and paying off credit card debt.

Significant sources of financial stress (Total)

Chart of financial stresses Source: Charles Schwab

How much do I need to save for retirement?

One rule of thumb suggests you need approximately 80% of your pre-retirement income in retirement. Another classic is the “4% Rule” which essentially says you should aim to withdraw 4% of your portfolio value.

Rather than rely on generic advice, the answer should depend on what retirement will look like for you. Are you planning on staying in your current home or downsizing to a smaller home? Moving to a 0% income tax state such as Florida or Washington? Do you plan to travel the world or stay at home working on your garden? What other sources of income will you have in retirement? All of these factors, and several others, impact how much you need to save for retirement.

Will I run out of money in retirement?

There are extra necessary costs that should be factored into your retirement plan. Health care expenses in retirement can be significant. It is estimated that a 65 year-old healthy couple retiring today will pay $266,589 over their lifetime in Medicare Parts B, D and supplemental policy premiums. The lifetime cost balloons to $394,954 when you factor in additional costs for dental, vision and co-pays. These figures don’t even include expenses for long-term care.

It is no secret that the future of Social Security is uncertain. Currently the Trustees estimate the Social Security Trust fund reserves will be exhausted in 2035. After that recurring revenues will only cover 77% of benefits. When planning for retirement, Social Security should be considered a supplemental source of retirement income and not the primary source.

The length of time in retirement is also an aspect to factor into retirement planning. An early retirement or a family history of longevity will impact how long your liquid financial assets need to last.

Am I on track with my savings?

The answer will be different for each individual. If your current strategy doesn’t quite meet your retirement goal some strategies to consider are: spend less in retirement, increase your monthly savings, delay the start of retirement or work part-time in retirement.

Getting your money working harder for you is another tactic to help achieve your retirement goal. Starting early to let your money compound is well-known advice. However, this is only half the equation, making sure you have the appropriate asset allocation is the second piece of the puzzle. Most have also heard repeatedly to maximize your employer 401(k) match. However, it is still surprising how many employees contribute the minimum or not at all. If your employer offers a matching contribution, maximize this benefit to the full extent. A dollar for dollar match essentially doubles your money without even getting into the stock market.

Tax efficiency is another way to maximize your money. The future tax benefits of a Roth account can be enormous since the earnings pulled out after 59 ½ remain tax-free. Take advantage of a Roth IRA if you are eligible. Or contribute to your employer’s Roth 401(k) if offered. For some, a Roth IRA conversion may make sense.

When can I retire?

We have only scratched the surface in regards to the complexities, issues and strategies for retirement planning. We strongly suggest everyone work with a financial planner to develop a customized retirement plan with the best retirement strategy for you. Having professional advice can help improve confidence and perhaps alleviate the stress of planning for retirement.






HealthView Insights. 2015 Retirement Health Care Cost Data Report.
Social Security Administration. Status of the Social Security and Medicare Programs, Summary of the 2016 Annual Reports.