3 Reasons Retirement Savings Is My No. 1 Financial Goal
KEY POINTS
- I've prioritized retirement savings because there's very few solutions if you don't have enough money.
- Social Security benefits alone will not provide nearly enough to live on.
- Healthcare costs can also skyrocket in retirement.
When I set financial goals, there is always one that is at the top of my list: Saving for retirement. I've always put this first above all other objectives such as saving for a house or even repaying loans early.
There are a few simple reasons why I have committed myself to investing money regularly in my brokerage account for retirement, even if that sometimes means there are other things I have to put off or am unable to do because I'm so focused on saving for my later years.
1. Social Security alone won't cut it
The biggest reason why I'm focused on saving for retirement is because I know I need money saved to be able to support myself.
The reality is, most people -- myself included -- are going to have two sources of income in retirement. The first is Social Security benefits, which are designed to replace about 40% of pre-retirement income. The second is savings, which I will need to provide all the rest of my money. I'm not going to have an employer pension and those are rare, so most people won't have one either.
Most experts advise replacing a minimum of around 70% to 80% of pre-retirement earnings. I'm aiming for more than that since I want to travel. I have to save to ensure I have enough money to provide the rest of the funds I need that won't come from Social Security.
2. You have few options if you get to retirement with too little
The second big reason I'm really focused on retirement savings as my top financial goal is because I know there aren't many good options if I don't have money saved.
I can work longer if I face a shortfall. But, some studies have shown as many as 40% of retirees were forced to leave the workforce before they were ready. Health issues, lack of opportunity, family issues, or a host of other problems could mean that working in retirement isn't really an option.
Other solutions like making a drastic change in lifestyle and living on much less, also don't seem very attractive to me.
If you get to retirement, can't work any more, and don't have enough savings, there aren't good solutions. The time to deal with this problem is before it happens.
3. Healthcare cost could be expensive for retirees
Finally, the last reason why I'm so focused on saving for retirement is because I know healthcare is likely to eat up a huge chunk of my monthly budget.
According to the Fidelity Retiree Health Care Cost Estimate, the average 65-year-old retired couple in 2023 may need as much as $315,000 saved to cover out-of-pocket care expenses beyond what Medicare pays for. That's a fortune.
While I hope to be healthy in retirement, I don't want to find myself wondering whether I can afford my prescription or go to the doctor if I need to. So, I'm prioritizing saving enough for retirement to have a dedicated healthcare fund.
How to make retirement your top financial goal
The reasons I've made retirement my top goal are the same reasons why everyone should do the same. Like me, everyone else is going to have to supplement Social Security and be ready to cover healthcare costs because there aren't any other great options (short of winning the lottery, which might be nice but probably isn't the best plan).
So, how can you do that?
- First, figure out how much retirement savings you'll need. A simple rule of thumb is to save 10 times your final salary.
- Next, use a calculator from Investor.gov to figure out how much to save each month to hit your target number. The amount will be based on your goal, your age when you start investing, and projected returns (assuming around 10% is reasonable when using the calculator)
- Automate your investment of that amount. Treat it as a must-pay bill. You can set up automatic transfers to your workplace 401(k) by filling out paperwork with HR or open an IRA at a brokerage firm and set up automatic transfers to it. Do not let yourself miss a month, even if that means cutting other things.
- Develop a solid strategy to invest your money. This could be as simple as putting the money into an S&P 500 index fund that tracks the performance of the S&P 500 (a financial index of 500 of the largest U.S. companies).
By taking these steps to prioritize retirement savings, ideally you can have the money you need to avoid a retirement with too little money and no good options.
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