As retirement approaches, it’s crucial to evaluate how much you should have saved by the time you turn 65. This amount will play a significant role in ensuring you maintain a comfortable lifestyle during your golden years. While everyone’s financial needs vary, there are general savings benchmarks based on income that can provide valuable guidance.
The Importance of Having Liquid Savings
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Many people’s net worth is largely tied to the equity in their homes. While home equity is a valuable asset, it isn’t liquid—meaning it can’t be easily accessed for day-to-day expenses or emergencies. As you get closer to 65, it’s important not to rely solely on your home’s equity. Though you could sell your home or borrow against it, this may not be the best option in retirement, especially if you’re aiming for financial stability.
To prepare for retirement, it’s essential to have liquid savings in accessible accounts like retirement funds, investment portfolios, or emergency savings. These resources will help cover unexpected expenses, healthcare costs, and allow you to enjoy your desired lifestyle without the need to sell or borrow against your home.
Savings Benchmarks for 65-Year-Olds
Knowing how much you should have saved by age 65 depends on your income and lifestyle expectations. According to research from Edward Jones, a general savings goal can be broken down based on annual income.
- For those earning $100,000 annually, a reasonable savings target would range between $1.05 million and $1.21 million.
- For those earning $200,000 annually, the recommended savings goal increases to $2.77 million to $3.17 million.
These figures are based on the assumption that you will retire at 65 and live until 92, maintaining your current spending patterns. It’s important to consider factors like inflation, healthcare costs, and market fluctuations when planning your retirement, as they can affect your financial outlook.
Catching Up on Retirement Savings
If you’re approaching 65 and haven’t reached your savings target, it’s not too late to make adjustments. Fortunately, there are several strategies to help you catch up on your retirement savings:
- Take Advantage of Catch-Up Contributions: If you’re 50 or older, you’re allowed to contribute extra funds to your retirement accounts. For example, you can contribute an additional $7,500 annually to your 401(k) and $1,000 to your IRA. This can help you accelerate your savings over the last few working years.
- Revisit Your Budget: Cutting down on discretionary spending and focusing on saving can have a big impact. Review your monthly expenses and look for areas where you can reduce costs, freeing up more money to contribute to your retirement fund.
- Consider Delaying Social Security: If possible, work a few extra years to delay Social Security. Doing so can increase your benefits by up to 8% each year past your full retirement age, giving you more financial flexibility in the future.
If You’re Ahead of Your Savings Goals
If you find that you’re ahead of schedule with your retirement savings, congratulations! Now is the time to take additional steps to optimize and secure your financial future. Consider these strategies to maximize your retirement wealth:
- Diversify Your Portfolio: Keep your investments balanced by including a mix of equities, bonds, and other growth assets that suit your risk tolerance. Diversification helps protect against market volatility and increases the potential for long-term growth.
- Consider Roth IRA Conversion: If you’re anticipating higher taxes in the future, converting part of your traditional IRA to a Roth IRA could be a smart move. This strategy allows you to pay taxes now on the conversion and avoid taxes on future withdrawals, providing tax-free income in retirement.
- Utilize Tax-Efficient Accounts: Health Savings Accounts (HSAs) are another tax-efficient investment option. HSAs allow you to save for medical expenses in retirement while enjoying tax-free growth and tax-free withdrawals for qualifying healthcare costs.
- Review Long-Term Care and Estate Planning: If you’re ahead on your savings, it’s also a good time to revisit your long-term care plans and estate strategies. Consider setting up a trust, updating your will, and making provisions for healthcare costs. This will ensure that your wealth is managed efficiently and protected for future generations.
The Bottom Line: Planning for a Secure Retirement
Whether you’re ahead or behind on your retirement savings, it’s essential to have a plan in place. If you’re falling short of your savings goal, working with a financial advisor can help you develop a strategy tailored to your needs. Remember, even small adjustments today can make a significant difference in your financial future.
On the other hand, if you’re ahead of the curve, continue to invest strategically and optimize your wealth to ensure you have the flexibility to enjoy a comfortable retirement. With the right preparation, you can retire confidently and enjoy the financial security you’ve worked hard to achieve.
