Every retiree deserves financial security, but far too many don't get it. If you don't want to worry about money as a senior, there are some key steps to take as early as possible in your working life.
Here are five signs that you're on track for a secure retirement.
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1. You have a retirement savings goal
As surprising as it may sound, research has shown that over half of Americans haven't even identified the amount they need to save for retirement. So simply having a plan puts you ahead of the game. Setting a retirement savings target lets you make an informed choice about how much to save and monitor your progress. If you haven't taken this step, there are a few different ways to set a goal, including estimating that you'll need 10 times your final salary.
2. You've planned for the impact of healthcare, taxes, and inflation
Healthcare and taxes are two of the biggest expenses you're likely to face in your later years, while inflation can eat away at the buying power of your accounts. If you forget to consider inflation when setting savings goals, you may feel your projected nest egg is big enough when it really will provide very little buying power.
If you haven't considered the impact of these three major expenses, this cost-of-living calculator can illustrate how inflation will reduce the value of your nest egg. Depending on when you retire, you may need to budget $325,000 (or more) for medical expenses. As for taxes, investing in a Roth IRA could help you avoid that problem.
3. You automatically invest in tax-advantaged retirement accounts
Far too many people fail to invest enough to hit their goals because they don't prioritize retirement account contributions. To avoid this, have money come directly out of your paycheck into your 401(k) or set up automatic contributions to your IRA on payday.
Once you've set your retirement savings goals (taking healthcare, taxes, and inflation into account), determine how much to invest. Automatic contributions for that amount mean you won't have to think about it again. If you can't save the necessary amount right now, invest as much as possible and work up to that goal.
4. You watch your investment fees
Investment fees are a fact of life, but the higher your fees, the more they eat away at your returns. Know exactly what you're paying in administrative costs for a 401(k), as well as how much the management fees are for funds you're investing in.
If your 401(k) has a high cost, or limits you to mutual funds with high fees, consider contributing only enough to earn your employer match and then put other money into an IRA with a brokerage that allows you to buy inexpensive exchange-traded funds (ETFs) instead. And choose a broker that doesn't charge a commission.
If you can minimize the damage done by fees, you'll end up with a lot more money as a retiree.
5. You have a diversified portfolio
Finally, it's imperative you haven't put all your eggs in one basket. Some investments are inherently riskier than others, and it's a given that some will underperform while others will do better than you anticipate.
Diversification is easy if you invest in ETFs that give you exposure to different asset classes, but it's possible to diversify by buying shares of different companies as well. Whether you buy stocks or ETFs, also invest in assets besides equities -- and have the right risk exposure given your age and investment goals.
It's never too late to get on the path toward retirement security
If you've taken all five steps, chances are good you'll have plenty of money in your retirement accounts. And if you haven't yet done all of these things, start working through the list now so you're ready to enjoy life as a retiree with no money worries.
