The 3 Reasons to Kick Start Your Retirement Savings

Mar 1, 2022 | Financial Planning, Getting Started, Nearing & In Retirement

Why You Need to Save and Invest for Retirement

I am sure you have read articles recommending that you need to save X amount of dollars to retire. While the number provided may be a helpful baseline, much of that advice does not address the reason you need to start saving in the first place. Due to increased life expectancies and workers wanting to retire earlier, it is reasonable to believe that many people will live in retirement for 30 to 35 years. For perspective, if you retire at the age of 60, you should expect to live 50% of your life all over again. Your generation and future generations are going to experience a completely different path to retirement than those before you. Many changes over the years have led to you, the saver, having the responsibility for funding your own future. No matter where you are in your retirement planning, here are three reasons why you have the responsibility and ultimately the control of your future.

Reason 1 – The Numbers Do Not Add Up Without Time and Investing

On average, a good saver will save 15% of their annual salary per year. However, saving money and investing money are not the same. Many savers who are worried about losing money might find themselves hesitant to invest in a portfolio containing stocks and bonds. In most situations, the only way to have enough money for retirement is to grow your savings. Consider the following: Over the course of your working career, you will have about 40 years to save up for retirement. You may live for 30 years in retirement, and if you are like most retirees, you will need about 80% of your current income for your living expenses. Adding in inflation, everything you spend money on now will cost even more in the future. When you factor in all these considerations, saving 15% of your current income will not be enough to cover your income needs in retirement.

Reason 2 – Pensions Are Retiring

In previous generations, employees had a long career at a steady job and received a guaranteed pension payment paid by their former company which lasted throughout retirement. The term “pension” at one time was synonymous with retirement income. Back in 1979, 87% of employees in medium and large private sector jobs participated in pension plans. Currently only 16% of private sector workers have a pension. With the increase in longevity, delivering a guaranteed income for life to retirees has become harder for companies and many have frozen their pension plans. Employees are now responsible for funding their own retirements since pensions themselves are retiring. The introduction of the Individual Retirement Account (IRA) and 401(k) retirement savings plans have allowed workers to shift the responsibility of paying for retirement onto themselves. However, the fact that you have the responsibly also means you do not have to worry about the ability of your former employer to stay in business to cover your retirement expenses, and you have the comfort of knowing you have the control over your financial future.

Reason 3 -Social Security Does Not Cover All Expenses

Social Security is only designed to replace 20% to 40% of your pre-retirement income. The higher your income was in your working years, the less Social Security will replace during retirement. If you are like most people, you probably don’t want to dramatically decrease your standard of living in retirement. If you are still working, you will have to wait until your late 60s to qualify for your full Social Security benefit. If you are looking to enjoy an early retirement, your choices are to accept a lower lifetime payout, or use your savings to cover your full income needs while you wait for your full Social Security benefits. Regardless of when you want to retire, there will be a gap between your Social Security income and your spending that needs to be made up from savings.

Your Retirement is Your Retirement

Your goals are different than your next-door neighbor and you need a specific plan to reach them. Your dream retirement is what should dictate your savings and investment plan. If you have been a disciplined saver, great! Review your retirement plan to make sure you are living life to the fullest today, while saving and investing for tomorrow. If you have not been disciplined, or have not started saving, grab control of your retirement future today. The most important step of the plan is having a plan. Meet with your GreenUp Wealth Advisor to map out how to get you to where you want to go.

GreenUp Wealth Management is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

Author

  • Tony Marquez, CFP®

    Senior Vice President | Wealth Advisor | Kansas City -- Tony is a Certified Financial Planner and has his master’s degree in Finance. Tony strives to be the expert, resource, and advocate that clients deserve when navigating a complex financial world. Prior to joining GreenUp Wealth Management in October of 2021, Tony worked as a Financial Advisor for a large financial services firm. There, he gained expertise in a variety of areas including financial planning, social security and retirement income strategies, college savings, and investment management.

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