Make Sure You’re Ready for Retirement

You have a 4 in 10 chance of running out of money during retirement according to Employee Benefit Research Institute. That’s frightening but not shocking. It’s simply more expensive to live and more difficult to save these days. There are three main reasons why most Americans face this problem:

Wages have not kept up with inflation. Over the last 20 years, the average inflation rate was 3.1 percent. But food, health care, housing and education costs have accelerated much faster.

Student debt has ballooned. According to CNN, more than half of all college students graduate with debt. The average amount is over $29,000. And because it’s so difficult to save, it can take years or decades to pay it off. And that’s only half the problem. If a student goes into debt, it means they’ve already exhausted all their own resources — and in many cases, they’ve cleaned out their parents’ savings as well.

Pensions are almost extinct. In 1980, 60 percent of Americans had pensions. Now 10 percent of us do, according to the Center for Retirement Research. Sure, you may have a 401k now, but that’s no substitute for a guaranteed retirement income check for life that pensions used to provide. In the old days, all you had to do was keep your job until you retired to get your pension. Now you can stuff as much money as possible into your 401k, and you still might come up short when it comes to retirement income.

Yes, it is much harder today to save for your future than it was 20 or 30 years ago. But that doesn’t mean you should give up. In fact, there are four steps you can take to turn your retirement nightmare into a very sweet dream.

Plan: In order to create a solid retirement footing, you need a plan. In order to plan you need information:

How much do you spend now?

How much do you think you’ll spend when you retire?

What will be your pension/social security income?

How much income can you derive from your investments?

Some of this data is easy to get. Other information will be hard to ascertain with certainty. Will your mortgage be paid off? Will you be able to get along without life insurance once you retire? These are hard questions to answer right now.

That’s fine. Just do your best. With this data you can project out what your retirement financial situation might look like when retirement day rolls around.

If the picture doesn’t look all that encouraging, don’t panic. We’ve still got three steps to go.

Brainstorm Tweaks: If you want to have a brighter future you’re probably going to have to put more money aside starting today. That means you will either have to cut spending, earn more, or a combination of the two.

If you aren’t able to implement these tweaks immediately, you may be able to do so down the line. Let’s say you aren’t able to cut spending or work more right now. Maybe you can delay your retirement. Maybe you can move to a lower-cost location once you do retire. Think outside the box, and list all your alternatives.

Automate Success: Even if you are only able to save $50 a month, get started and automate it by setting up a bank draft. Something is better than nothing. And you will likely see that monthly savings amount grow very quickly. Once you experience how great it feels to build your future, you’ll be excited and invigorated. You’ll be amazed how easy it will be for you to find ways to save more.

According to the National Institute of Retirement Security, people who have retirement savings have up to 15 times more money saved than people who don’t have a retirement account. That’s because people who get a taste of success usually want more.

Accountability: If you want to make any significant change in your life, be accountable to someone else. There is something magical that happens when we tell someone else what we are going to do and how we are going to do it. I suppose this has something to do with the fear of disappointing other people.

Regardless of why it works, tap into the power of being accountable as soon as possible.

Forty percent of Americans go broke during retirement. The good news is you can comfortably put yourself in the 60 percent club and never worry about it. Get your plan together, brainstorm tweaks, implement the changes that are most effective, and automate as much as possible. Last, find an accountability partner, and check in with that person at least once a month.

These are easy steps to take and extremely powerful.

Neal Frankle, CFP of Westlake Village, frequents Santa Barbara often, but when he’s not in town, he’s helping his clients or busy as the editor of WealthPilgrim.com and MCMHA.org.