How Do You Know If You’re On Track To Retire, And How Do You Catch Up?

SALT LAKE CITY, Utah – Most of us, these days, do not have a pension. That means retirement planning is up to us.

“Now the burden for preparing for retirement is on Americans,” said Sharla Jessop, president of Smedley Financial. “It’s on us. We have to save for ourselves.”

But a survey by wealth management firm, Personal Capital, found recently that 39% of millennials and 34% of Generation Xers have nothing saved for retirement.

Jessop says people have to save for themselves and for retirement and not rely on Social Security benefits.

“Most people will not be able to maintain their lifestyle if they live on just Social Security. They may not be able to cover their basic expenses,” she said.

“30 years will go by faster than you think,” cautioned certified financial planner Shane Stewart of Deseret Mutual Benefits Administrators. “Save all you can now.”

If you are saving for retirement, how do you know if you are on track? Stewart says at least ten percent of your income should be going towards your retirement.

“If you get ten, maybe even 15% of what you make into a retirement account on a regular basis, you’re moving forward. You’re making progress,” he advised.

Here is another benchmark. Fidelity Investments suggests by the time you reach 30, have a year’s salary saved in your retirement plan. It goes up to three times by age 40. Six times when you hit 50. And, by the traditional retirement age of 67, have ten times your final annual salary saved in your retirement plan.

If you haven’t hit those marks, do not panic yet. Remember, they are only a rule-of-thumb.

“The problem with rules of thumb is they’re so general,” said Jessop.

Too general to account for things like job loss, divorce, even differences between upper and lower end-incomes.

“Their spending habits are different. Their needs in retirement are different,” Jessop explained. “Really, when people are doing retirement planning they need to do something that’s specific to their situation.”

The worst thing you can do is to give up.

“All is not lost. I have seen some great success in people starting over again. They just have to put a concentrated effort into contributing and contributing as much as they can,” Stewart said.

So, how do you move forward and make catching up with retirement achievable?

Both Stewart and Jessop say start by cutting expenses

Maybe, you don’t need that unused gym membership, satellite radio, the daily five-dollar latte or a new car every few years.

“It’s all about having balance in your planning and your spending. So, make sure you have the balance to enjoy life. But, you can’t just enjoy life today at the expense of having retirement,” Jessop said.

Next, see what retirement your company offers.

“Many employers have a 401K plan. They’ll have matching or profit sharing,” explained Stewart. “So, if you check with your employer make sure you’re contributing to anything you possibly can.”

Stewart says if the company match is five percent, save at least five percent of your income as a start. But, keep focused on hitting ten to 15%, or more.

“If you’re one to say, well, that’s way too much for me, start with four or five percent,” he said. “A great thing we recommend people do is every year they get a raise, increase what they’re contributing to their 401K. So, if it’s five this year, next year’s raise make it six. The following year make it seven and build up.”

Many plans have auto-escalation that automatically nudges up your contribution every year.

But once you do have plan, avoid borrowing against it. Jessop says it often derails retirement plans. Most plans will stop your retirement contributions until your loan is paid back. It can be a permanent setback.

“Find other means,” advised Jessop. “If you have an emergency, you should have money set aside so you’re not using that 401K as a backup for your emergency.”

Both Jessop and Stewart recommend an emergency fund of at least three months of your income. But, anything is better than nothing.

“Build that up at the same time you’re building your 401K so that it can be protected against your ability to borrow against it,” Jessop explained.

No 401K at the job? If you or your spouse has an income, you can open an IRA and make your contribution automatic so you’re not tempted to put it off.

But however you tackle retirement, start tackling it today.

“The time value of money marches on,” said Stewart. “The sooner you can get something going, the better.”

“I can’t enough positives about the value of compounding interest,” Jessop seconded. “And, the sooner you get your money in there and the great it is going to compound.”