7 steps you can take now to catch up on your retirement savings
By prioritizing retirement as early as possible, you can ensure that you have a solid base of contributions that will continue to grow.
– Anna N’Jie-Konte in Business Insider
Millions of Americans have been impacted by COVID-19 and its economic consequences. Many workers have been forced to put a temporary hold on new contributions to 401(k) or other retirement savings plans, which has resulted in a big opportunity cost in terms of lost potential earnings. Some pre-retirees have delayed retirement altogether or had to reimagine their plan to include part-time work to improve their savings.
The pandemic also widened the existing retirement security gap for women and communities of color—groups that have historically struggled with less job security, incomes and savings. In 2020, two-thirds of single Black retirees—and three-quarters of single Latinos—had incomes below the Elder Index, a data set from the University of Massachusetts Boston that tracks senior poverty. Individuals like Anna N’Jie-Konte, founder of Dare to Dream Financial Planning, are dedicated to making financial services more inclusive and serving these vulnerable communities.
So, if your retirement savings progress has been sidetracked, don’t panic. It is never too late to start saving money you will need in retirement.
Here are seven steps you can take now to help you catch up on retirement savings.
- Track your spending. Make a list of everything you own (money in bank accounts, financial investments, equity in real estate and other assets) and everything you owe (credit card debt, auto loans, mortgage, etc.). Determine what your average monthly expenses are going to be in retirement and be realistic about what income you will need to comfortably cover them.
- Make a plan, then save and invest accordingly. If there is a gap between what you have and what you need, it’s time to roll up your sleeves and get to work. The Check Off the Basics approach can help you discover ways to help cover your essential expenses—things like a mortgage, utilities, groceries and transportation—with protected income. When you’re able to cover those basic expenses with income you can always count on, among other things, you won’t have to worry about running out of money in retirement, which could last 20, 30 or more years.
- Manage and reduce your debt now. One of the best times to pay off your outstanding debt is while you’re still working. Prioritize eliminating high-interest credit card balances, education debt, car loans and other costly borrowing now.
- Plan for the worst-case scenario. Make sure you have an emergency fund in place—preferably of up to one year’s worth of your essential monthly expenses—in cash or highly liquid investments. Workers in their 50s and 60s should also make contingency retirement plans so they are financially ready in the event of an unplanned retirement.
- Understand your retirement options. You can start collecting your Social Security benefits at age 62. But unless you absolutely need to, should you? You are most likely to benefit from waiting and earning a substantially greater income benefit. For some, protected income from an annuity may be a good option to create an income “bridge” which would allow you to wait and claim your maximum Social Security benefit.
- Retire later. If you’re able, claim your Social Security benefits after your “full retirement age” for—which is between 66 or 67, depending on which year you were born. That will give you more time to save. You can receive the largest benefit each month by claiming at age 70.
- Work with a financial professional. While retirement planning can seem daunting, confusing and overwhelming, it is necessary, valuable and important. It’s best to work with someone who understands the nuances of the many choices and can work with you to achieve your retirement goals. “It allows you to cut through the noise and the grey area, and operate with facts and information,” N’Jie-Konte writes. “Operating from an informed place is the secret to achieving your dreams and preventing your nightmare scenario.”
For more guidance and information on planning for retirement, watch our Your Money Map conversation with Dare to Dream Financial Planning founder and “First-Gen Realness” podcast host Anna N’Jie-Konte and Jean Chatzky on the Alliance for Lifetime Income Facebook page.