Are you worried about getting a late start on your retirement planning? Last week, my colleague Scott Spann wrote about how a focus on your overall financial wellness can help you overcome a late start with your retirement. If youâre fortunate enough to have an employer that offers a financial wellness program in your workplace, here are some ways it can help you:
Calculate how much you need to save
The short answer is likely to be a lot. Thatâs because you may need to make up for decades of lost savings and compounding. Just using an online retirement calculator can make sense when youâre young and have a large margin of error, but youâll want to get a more accurate savings goal now since you wonât have much time to make up a shortfall if youâre wrong. A good financial wellness program can also connect you with a qualified financial planner who can help you calculate this number.
Find those savings
Once you know how much to save, youâll need to actually find the money to save. When youâre young, you can use an automatic contribution rate escalator to gradually (and relatively painlessly) increase your savings over time. The bad news is that you may need to act faster now.
The good news is that youâre probably in your peak earning years and may even have your mortgage and other debts paid off. If the kids are out of the house, you may even be able to downsize or rent out any extra bedrooms. You may also have other options for generating income in retirement like working a part-time job or business, delaying Social Security benefits, taking a reverse mortgage, purchasing an income annuity, or investing in rental real estate. A holistic financial planner can help you track your expenses, find additional ways to save, and explore alternative ways to supplement your retirement income.
Determine where to put your savings
Youâll likely need to save more than the match in your employerâs retirement plan and may need to save more than the maximum allowed (even with the additional $6,000 catch up contribution limits.) If your plan offers after-tax contributions, should you take advantage of them? What about contributing to a traditional or Roth IRA? If youâre eligible to contribute to an HSA, should that be part of your retirement savings? Should you consider purchasing cash value life insurance, pay your mortgage down early, or just put money in a regular taxable account?
A financial advisor who sells investments or insurance for a commission may not have your best interests in mind. Even a fee-only advisor who charges an asset-based fee is only going to be compensated for money you invest with them. Any advisor is probably not going to be familiar with the intricacies of your employerâs retirement benefits. However, an unbiased financial planner through your workplace financial wellness program should be able to help you decide what makes the most sense for you.
Decide how to invest your savings
Many people try to make up for lost time by investing aggressively with the hope of hitting a home run, but you could also strike out without enough time to even the score before retirement. On the other hand, investing your precious savings too conservatively might not give you the growth you need. If youâre relatively new to investing, you may also be tempted to bail out of stocks during the next market downturn and miss the recovery. An experienced financial planner whoâs been through at least one full market cycle can help you decide the right mix of investments for your risk tolerance and goals and stick with your plan through thick and thin.
Finally, the fear of realizing that you donât have much time to plan and save for retirement can lead to hopelessness that paralyzes you into further inaction. Attending a financial wellness workshop or webcast on retirement planning can be a nonintimidating way to learn what steps you need to take. One-on-one sessions with a financial wellness coach can help motivate you to take those steps. In any case, time is your most valuable resource. If you have access to a free financial wellness program at work and havenât taken advantage of it, what are you waiting for?