Nearly six of 10 Americans feel that they're behind on retirement savings, a Bankrate survey found. Are you one of them?
As 2025 nears, now's a good time to see if you're on track for retirement. And if you're behind, make any needed adjustments to catch up.
Why do it around year-end? "Choosing the same time of year builds a habit," said Patti Brennan, CEO of Key Financial. "And when January 1 rolls around, you get to start fresh."
Assessing your retirement readiness at the end of the year also gives you all of next year to make necessary tweaks to your plan, adds Chris Mediate, president of Mediate Financial Services.
Get A Baseline For Retirement Savings
For starters, take a fresh inventory of where your finances stand now. "The first step is getting organized and understanding what you have and what you owe," said Daniel Duca, associate director at Altfest Personal Wealth Management.
That means quantifying your assets and liabilities. Gather statements from accounts that you'll likely tap in retirement to pay the bills. That includes 401(k)s and IRAs plus savings and checking accounts. But also CDs and annuities. Grab Social Security paystubs or monthly benefit projections if you're not retired yet. Then tally up the balances to get a guesstimate of how much income they'll generate when you stop working.
But it isn't just about what's coming in each month. It's also getting a handle on how much money is going out of your accounts.
"Get a baseline," said Brennan. "What were your cash flow needs this year?"
And make sure you scrutinize expenses, said Duca. "Expenses are one of the most important (determinants) of retirement readiness. A lot will hinge on what the level of spending will be in retirement."
You'll need more money if you plan on lots of travel or buying a second home that requires you to carry a mortgage, or you envision supporting a family member. Be especially mindful of recurring household expenses which never go away. If you bought a new home with a 30-year mortgage on the day you retired, for example, be prepared to pay that bill for 360 months.
Determine Gaps In Your Retirement Savings Plan
Identifying your current situation is critical, adds Mediate. So when you're reviewing your retirement goals, put a number on it. "How much retirement income do I need or want once I retire?" said Mediate.
Then do the math.
"Once this is established, you can determine your income gap — the difference between the income you'll need in retirement and the income you expect from sources like Social Security, a pension and your personal savings," said Mediate.
Then comes the fine-tuning, says Emily Irwin, head of advice center at Wells Fargo.
"Start with your baseline and then you can adjust upwards or downwards," said Irwin.
Too often, retirement savers, even ones with $1 million or more saved, think the money will last them a lifetime. But that's not always the case.
"401(k) balances can balloon to a significant amount," said Irwin. "However, it's deceiving because people are living longer and might have to fund a retirement of three or four decades. And all of a sudden, the number becomes a lot skinnier."
Adjust Portfolio And Personal Finances To Close The Gap
The last step is to calculate the assets you'll need to fill any financial gaps you have and tweak your savings, spending and investment plan to reach your goal.
"Do the math to determine if the income sources will generate enough income to cover lifestyle expenses," said Troy Young, founder and President of Destiny Financial Group. And when calculating your expenses make sure to factor in inflation and taxes, which could rise over time.
You might also have to beef up your 401(k) and IRAs to generate extra wealth to meet your income goals. Most people, according to Fidelity Investments, will need to generate about 45% of their retirement income from savings. Fidelity estimates that if you save 15% a year from 25 to 67 you should be able to reach that goal.
Using savings guideposts is one way to get a guesstimate of your retirement readiness. For example, Fidelity recommends having 1x your salary saved by age 30, 3x your annual pay by age 40, 6x your salary by age 50, 8x your yearly earnings by age 60, and 10x your salary by age 67.
When figuring out your retirement "number," or the lump sum you'll need at retirement age to fund a secure retirement, it's not just about looking at your existing balance. To project the growth of your current balance into the future, you'll need to include annual contributions to your 401(k) and assign an expected rate of return, such as 7% or 8% per year, that you will need to reach your goal. It's also wise to "stress test" your nest egg to see how it would fare under various market outcomes, both good and bad.
Getting help from a financial advisor is one way to stress test your nest egg. Or you can do a more basic calculation yourself with the help of a retirement calculator, says Rob Williams, managing director of financial planning and wealth management at Charles Schwab.
"Start with a rough calculation," said Williams. When plugging numbers in, include the number of years until retirement, an expected annual return rate, your current assets and how much you'll save on a monthly or annual basis.
While Schwab 401(k) participants think they'll need $1.8 million to retire, Williams says everyone's number is different. Once you get a sense of how much you'll need to last until at least age 90, control what you can control, says Williams. "Investing in a diversified portfolio of U.S. and global equities (and bonds) has been a consistent path to wealth," said Williams.
Get Your Retirement Savings Back On Track
To get back on track, find the reason you're behind on your savings. It's hard to fix something if you don't know what's broken.
"If you're off track, start by identifying why?" said Mediate. "Are you saving enough? Are your investments (and asset allocation) aligned with your goals? Do you need to adjust your retirement age or (lifestyle) expectations?"
Often, it's a big house with a sizable mortgage or owning a second home or spending too much on a car that gets people in trouble in retirement, adds Brian Walsh, head of advice and planning at SoFi. Since it's hard to shrink a house, "it's easier to avoid those headwinds to begin with," said Walsh.
Next, don't procrastinate. If you identify a savings shortfall, move swiftly to remove the roadblocks. "Make ongoing modifications ASAP," said Brennan. "It's so much easier to get back on track when you catch things early."
That means if you don't have a budget, make one now. If you're overspending, look for areas to cut so you can save more.
Third, weigh the levers you can pull. To move from the so-called red zone into the yellow zone and back to the green zone requires some trade-offs, says Rohan Sharma, vice president of retirement income at Ameriprise Financial. You might consider working longer and retiring later. "Even deferring retirement by one year can have a material impact," said Sharma. And if you're 10 or more years from retirement, the best fix is saving more and investing for growth.
Don't forget to benefit from the basics. Automate your savings so you make sure you pay yourself first. Build an emergency fund so that you don't get into trouble and have to tap credit cards or home equity to pay for an unexpected car repair or home fix, says Irwin. Max out your retirement accounts — and make sure you don't leave money on the table by not contributing enough to get your employer's match. And if you're over 50, take advantage of catch-up contributions. If you need to earn more, increase your allocation to assets that deliver larger returns over time, such as stocks.
Lastly, don't swing for the fences. Trying to fill a big hole in your retirement account overnight by taking outsize risks might do more harm than good if big losses occur. "Be careful when picking investments," said Brennan. "There is no need to get overly aggressive even if you are off track." Ideally, you'll want a diversified portfolio that's less prone to losses due to too much capital riding on a single stock or sector.
The worst thing you can do if you're off track for retirement is put your head in the sand and ignore reality, says Irwin.
"Don't say to yourself, 'there's no use in even trying,' " said Irwin. "Incremental daily changes can make a difference."
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