If you're late getting to planning for your retirement, you're not alone. A recent Motley Fool research report on Americans' readiness for retirement notes that "47% of working households are in danger of not having enough retirement savings, according to analysis from the Center for Retirement Research at Boston College." It added that, "The median retirement account value in 2023 was $87,000." Yikes.
Fortunately, as long as you still have some time before you retire, there are numerous strategies you might employ to get in much better financial shape before retirement. Here are some to consider.
Image source: Getty Images.
1. Devise a plan
In order to build a solid retirement plan, you might start by gathering information and thinking through some topics, such as:
- How much income do you expect to need in retirement? Think of all the things you'll expect to be paying for, including food, shelter, utilities, taxes, travel, entertainment, etc.
- How much might healthcare cost you in retirement? How might you keep healthcare costs down?
- How much money is your household bringing in now? Might it be increased somehow?
- What are you spending your money on now? (A budgeting exercise can help a lot here.)
- How might you adjust your spending to allow for more retirement savings?
- What is your spending likely to be in retirement? (Remember that some expenses, such as wardrobes and commuting, will probably decrease a lot, while others, such as travel and healthcare, may increase.)
2. Aim for multiple income streams
With the information you gathered above, you can develop a retirement plan. It should include how much income you need or want in retirement -- and how you'll attain it. One rule of thumb is to amass, as your nest egg, 25 times your expected annual spending in retirement. So if you're looking for $80,000 in income, you'll want a nest egg of $2 million.
Don't start hyperventilating at that. Remember that it's a rough guide, and we're all different. Those who live in (or relocate to) places with a low cost of living can likely get by on a lot less. Those without expensive hobbies or plans to travel widely can also require less.
Ideally, aim for multiple income streams. Your goal might look something like this:
|
Income source |
Annual income |
|---|---|
|
Social Security |
$30,000 |
|
Dividends from stocks |
$20,000 |
|
$10,000 | |
|
$20,000 | |
|
TOTAL |
$80,000 |
3. Save aggressively
If you haven't been socking money away aggressively, it's time to do so. You might turbocharge the process by taking on a side gig for a short or long while to bring in some extra money.
The table below can show you what's possible, to inspire you. Note how much more you might amass when investing bigger sums:
|
Growing at 8% for |
$7,500 invested annually |
$15,000 invested annually |
|---|---|---|
|
5 years |
$47,519 |
$95,039 |
|
10 years |
$117,341 |
$234,682 |
|
15 years |
$219,932 |
$439,864 |
|
20 years |
$370,672 |
$741,344 |
|
25 years |
$592,158 |
$1,184,316 |
|
30 years |
$917,594 |
$1,835,188 |
|
35 years |
$1,395,766 |
$2,791,532 |
|
40 years |
$2,098,358 |
$4,196,716 |
Data source: Calculations by author.
4. Invest effectively
Consider investing your long-term dollars in the overall stock market. Since the U.S. stock market has averaged annual returns of close to 10% over many decades, be a little conservative and assume perhaps 8% average annual growth over your investing period -- though you might average more or less.
Investing in the stock market can be as simple as investing in one or more simple, low-fee index funds such as:
- Vanguard S&P 500 ETF (VOO 0.30%)
- Vanguard Total Stock Market ETF (VTI 0.29%)
- Vanguard Total World Stock ETF (VT 0.30%)
The first will invest you in 500 of America's largest and best companies, which make up approximately 80% of the U.S. stock market's value. The second option offers nearly the entire U.S. stock market, and the third option offers the world's stock market.
NYSEMKT: VOO
Key Data Points
5. Postpone retiring
Postponing your retirement by a few years can be a surprisingly effective strategy. If you're, say, seven years from retiring, consider retiring in 10 years, instead. For each year you delay, you can save and invest more money -- and your portfolio will have another year in which to grow.
On top of that, your nest egg will need to support you for fewer years, and you may be able to stay on your employer's health plan longer, saving more money.
6. Delay claiming Social Security benefits
You can start collecting Social Security benefits as early as age 62, or you can delay up to age 70. Starting early means smaller benefit checks -- though you'll collect many more of them. Delaying will increase your benefit checks. For most retirees, the best strategy is to wait until age 70 -- though collecting early will be the right move for plenty of people, too.
There are other ways to increase your Social Security benefits, too.
7. Think outside the box
There are many more strategies to consider, and you might act on multiple ones. For example, you might look into whether getting a reverse mortgage makes sense for you. You might cash out a life insurance policy, or take in a boarder for a few years. And you might consider moving to a less expensive place -- perhaps even a less expensive country.
However you do it, start planning for your retirement now.
