3 Signs You Might Wind Up Unhappy With Your IRA in Retirement

There's a reason people are told not to plan to retire on Social Security alone. Those benefits will only replace about 40% of your income if you earn an average wage. And most seniors need more income than that to cover their living expenses and actually have enough money left over to enjoy themselves.

That's why it's so important to steadily fund an IRA. But whether you open a traditional IRA or a Roth IRA, if these signs apply to you, it means you may be putting yourself at risk of not having a large enough balance for retirement.

1. You've written off the idea of maxing out your IRA

IRAs max out this year at $6,500 for savers under 50 and $7,500 for those 50 and over. By contrast, 401(k) plans max out at $22,500 for savers under 50 and $30,000 for those 50 and over.

As such, maxing out a 401(k) is a pretty difficult thing to do. But unless you're a lower earner, maxing out an IRA may be more than feasible. So if you're going to tell yourself from the start that maxing out isn't doable, you might be setting yourself up to end up with a shortfall. Instead, take a look at your budget and see what spending changes you can potentially implement to make it possible to max out.

2. You're not increasing your contribution rate

It's one thing to contribute minimally to your IRA when you first kick off your career and don't earn a very high wage. But as your earnings increase, your IRA contributions should follow suit. If you're not increasing your contribution rate year after year, you're limiting your options in retirement.

That's why a good bet is to save your raise every year. Since it's money you're not used to living on anyway, you should have a pretty easy time parting with it.

3. You're investing your savings too conservatively

The beauty of an IRA is that you can invest your money in a tax-advantaged manner so it grows even more. But if you stick to conservative investments, you might end up unhappy with your balance come retirement.

That's why it's so important to load up on stocks, especially when retirement is far off. If you play it too safe, you might end up with a shortfall on your hands.

Vanguard says the average annual return for a portfolio of only bonds is 5.33%, while the average stock market return (as measured by the S&P 500 index) is 10%. So let's say you contribute $100 a month to an IRA over 35 years. At a 5.33% return, you're looking at a final balance of $116,000. At a 10% return, you're looking at $325,000.

Your IRA could be the account that helps you not only manage your costs in retirement, but enjoy that stage of life to the fullest. If these signs apply to you, it means it's time to make changes to the way you fund and invest your IRA.