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How to Improve Your Odds of Retiring on Schedule

By Kailey Hagen - Mar 8, 2020 at 12:32PM

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You know when you want to retire. Now you need a plan to make that happen.

You probably have a retirement age in mind, but how likely are you to actually retire then? A recent TD Ameritrade survey crunched the numbers on this and found that the average chosen retirement age among adults 40 to 79 was 67, but the likelihood of actually retiring at that age was only 67%. That means about one out of every three people won't retire when they planned.

There are two possible reasons for this. A person might be forced into an unplanned early retirement due to job loss, an illness, or a family emergency. Or you might not have enough money saved by your planned retirement age and have to continue working a little longer. Neither case is ideal, and unfortunately, there's no way to be sure it won't happen to you. However, you can reduce that risk by taking the following steps.

An older woman working at her desk and talking on the phone

Image source: Getty Images.

How to reduce your risk of unplanned early retirement

Early retirement might not sound like a bad thing, but it's actually a much more serious problem than having to delay your retirement. If you're forced to retire early due to circumstances beyond your control, your existing savings will have to last you much longer, and they may not stretch far enough, no matter how frugal you try to be. If a medical condition forces you to retire early, you'll probably drain your savings even faster to cover your bills.

Staying healthy is key if you plan to continue working until you've saved enough. Eat right, exercise regularly, and find healthy outlets for stress. Schedule regular checkups with your doctor to catch potential health problems early. Make sure you have good health insurance coverage both now and when you retire so that a medical condition won't drain your savings as quickly.

You should also keep your job skills up to date and continue to push yourself in your career. This will help your company see you as an asset at every age, and it might even earn you a promotion or two in the meantime, which will give you extra money to put toward your retirement savings.

It doesn't hurt to have a backup plan in case you are forced to retire early. You might be able to get a part-time or remote job if you're still able to work in some capacity. You could also seek out other ways to earn money, like renting out a spare property. But if that doesn't work, you'll probably have to trim your budget to just the essentials.

How to reduce your risk of a late retirement

Delaying your retirement might be your only choice if you weren't able to save as much as you'd planned when you were younger. It's a smart play if you're able to keep working because it gives you more time to save while also reducing the length of your retirement and, thus, how much money you'll need.

However, if you're really ready to kiss the workforce goodbye, you need to prioritize saving as much as you can when you're young. Your earlier retirement contributions matter a lot more than your later ones because money you invest earlier has more time to grow before you need to use it. Consider a one-time $1,000 contribution left to grow for 10 years with a 7% annual rate of return. It would only end up being worth about $1,967. But if you left that same sum to grow for 30 years with the same average rate of return, it would be worth a much more impressive $7,612. 

Create a retirement plan using estimates for your life expectancy, average annual expenses in retirement, and the income you expect from other sources, such as Social Security or a 401(k) match. A retirement calculator can help you figure out roughly how much you need to save per month and overall. Aim to save at least as much as it recommends. You might have to make changes to your current budget to make that happen, such as reducing your discretionary spending. 

It doesn't hurt to contribute a little more every month if you have the spare cash and you think you might want to retire even earlier. You're allowed to contribute up to $19,500 to a 401(k) in 2020, or $26,000 if you're 50 or older. You can also stash $6,000 in an IRA in 2020, or $7,000 if you're 50 or older.

There's no way to be sure you'll be able to retire on time, especially when you're several decades away from retirement. But if you save as much as you can and keep yourself healthy and your job skills up to date, you stand a good chance. Look over your retirement plan at least once per year to see if you need to make any changes to what you're doing. Making smaller, more frequent changes is easier than trying to make large changes later.

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