If you’re a member of Generation X in Greeneville, TN, you might well be wondering whether it’s too late to start saving for your golden years. After all, the oldest Gen X’s are only about a decade away from standard retirement age, which means it’s coming up fast. 

If you’ve read a few articles or looked at retirement calculators, you might have seen advice like “you need $1 million to comfortably retire.” If you don’t have much saved for retirement, or zero, that can be daunting advice – even frightening.

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Let’s put fear in its place. It is not too late to start saving for a comfortable retirement. You are not alone if you haven’t saved much, either. A large proportion (40 percent) of employed people between the age of 45 and 54 have saved less than $10,000 for retirement. Only 9 percent of those people were positive they had enough saved for retirement.

Make a Plan

The key is to focus on your individual needs rather than an arbitrary retirement calculator figure and make a plan that will give you a livable retirement. If you can save the maximum in your retirement plans, there is still time to amass a nest egg, too. A 40-year-old with a zero balance for retirement can hit $1 million in just over 24 years, if they can save $17,000 in a 401(k) retirement plan, assuming they get a 7 percent annual return rate and reinvest it. (That return has been roughly the average of the stock market for the last several decades.)

But the fact is, not everyone needs a million to retire. Plenty of people retire comfortably with less. What everyone does need is a plan. It’s advisable to work with a CERTIFIED FINANCIAL PLANNER™ Professional in the Greenville area. CFP®s are fiduciaries and thus must place your financial well-being first at all times. They can work with you to plan for retirement over the next several decades.

Define Your Goals

Financial planners need to know your goals as an integral part of helping you plan. Why? Because your goals have a direct bearing on how much money you’ll need. It’s impossible to plan prudently unless you know what you want and need in retirement.

The financial needs of someone who wants to travel a great deal in retirement are likely to be much greater than those of someone who’s happy to sit on their own front porch, for example. Do you want to retire to a different place than you live now? If so, it’s a good idea to get a handle on current real estate prices and property taxes (if any). Will your mortgage be paid off or will you still be paying it? 

Create a Budget

Once these goals are defined, you can work with your CFP® to create a retirement budget. A retirement budget is not about restricting your expenditures, by the way. It is more akin to a business’s cash flow statements. You need to know what income flows in every month and what expenditures flow out, on average. The knowledge allows you to plan for your needs, understand how much you could save for retirement, and make any necessary changes in your income or expenditures vis-à-vis your goals.

Your CFP® will likely create a budget for your current life. A retirement budget can begin as a forecast based on your current budget. It’s estimated that retired people need roughly 80 percent of their pre-retirement income to meet their expenses. While some expenses, such as commuting to work if you don’t plan to work, may fall, others, such as a travel budget or healthcare expenses, often rise. You’ll still need food, insurance, utilities, entertainment, and other spending categories, too.

A projected retirement budget must include an income forecast, of course. First, estimate how much Social Security you’re expected to receive if you’re entitled to Social Security. Second, estimate how much income you’re likely to receive from any retirement savings. 

A general rule of thumb for the latter is that retirees can withdraw 4 percent of their retirement savings annually for 30 years and not run out of their funds. If you have $15,000 saved at retirement, then, you can withdraw $600 per year. If you have $150,000 saved, you can withdraw $6,000 per year. If your retirement nest egg totals $1.5 million, you can withdraw $60,000 per year. 

Once you see your estimated income versus estimated expenses, you can plan for retirement. If you’ll clearly have enough saved, great! Hold on to it. If it looks like you’ll have a shortfall in income, here are some strategies for what to do.

Identify Any Obstacles to Savings

Many Gen X’ers haven’t saved much for retirement because they’re too busy dealing with the rest of life and its costs. They have credit card debts, student loans, mortgages, and more.

You need to identify what obstacles are standing in the way of your saving. Are you carrying a lot of credit card debt, for example? See if you can spend less by consolidating the debt on a low-interest rate card or obtaining a personal loan at a lower interest rate. As you pay down the debt, move the money you save into retirement savings.

If you have student loans, can you consolidate them for a smaller monthly payment?

If you have a large mortgage, check into refinancing. Refinancing can lower your monthly payments, especially as interest rates are currently at historic lows. Another strategy is downsizing, especially if your children have left home or are soon to leave. 

Start Saving

Then, make full use of retirement savings accounts. If you have access to a matching 401(k) or similar retirement plan, put all you can into it, especially if you’ll get a company match. If your company doesn’t offer a 401(k), open a self-directed traditional or Roth individual retirement account (IRA). 

All these plans offer a catch-up boost in contribution limits for folks 50 and over. For 401(k)s, the contribution limit is currently $19,500, with a $6,500 catch-up added. For IRAs, the current contribution limit is $6,000, with a $1,000 catch-up. 

Consider Working Longer

If you’re still concerned that you won’t have a comfortable retirement, work with a financial planner to explore further options. One that is increasing in popularity is simply working longer, or taking part-time employment in a different area.

The bottom line: no, it’s not too late to start saving – and planning – for your retirement. At Sapiat Asset Management, we use a unique, personalized process to identify the needs of our clients. We are with you every step of the way. Contact us today for a complimentary consultation.