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The New Rules Of Retirement Savings According To Experts
This is not your parents' retirement. A traditional pension plan from your employer offering a set amount monthly or a lump sum at retirement is a rarity. And that once dependable Social Security check may not be the linchpin it was. Social Security funds could be depleted in another decade without congressional intervention, meaning you won't get all you're owed.
So yes, the retirement landscape is different.
For sure, you need to make adjustments to the retirement strategy playbook, but don't rip out all the pages.
Here's how to navigate saving for retirement.
Focus on your ideal retirement, not a "magic number"
One of the most popular "old rules" of retirement was if you saved X amount, you'd be set for retirement. There were debates on exactly what the "magic number" was: $1 million, $5 million, or some other number.
"But in reality, there is no one-size-fits-all amount. When you're planning for retirement, think about what you want out of life," says Mark Henry, founder and CEO of Alloy Wealth Management.
Figure out how much you need to live on monthly once you retire:
- Add up all expenses, from necessities like groceries to wants like recreational activities.
- Multiply your monthly expenses by 12 to know how much you need per year.
- Then multiply that by roughly how many years you expect to be retired, explains Henry.
"Focus on saving up for what you want in retirement, not a 'magic number,'" says Henry.
The old rule of sticking to a rigid retirement age is out. "Instead, focus on financial independence, which allows you to choose when and how you retire," says Justin Godur, founder of Capital Max, a provider of advisory and financial services.
Take advantage of new legislation
If you find it hard to meet student loan payments and save for the future, ask about student loan 401(k) matching.
Secure Act 2.0 now allows employers to make matching 401(k) contributions for every student loan payment an employee makes.
"If your employer already offers traditional 401(k) matching, ask about this perk to invest in your future while paying off your investment in your education," says Henry.
Invest beyond your 401(k)
Your 401(k) will likely be a big part of your retirement, but unlike the past when maybe Social Security and your 401(k) could fund much of your retirement, these days and in the future, this might be a good start but insufficient.
"Don't put all your eggs in the 401(k) basket," cautions Crispin O'Toole-Bateman, founder of Funding Plus.
Look into investing in a Health Savings Account
Health care costs are rising, and they will likely continue to do so.
"Building a robust Health Savings Account (HSA) can serve as a dual-purpose tool: a tax-advantaged way to save for medical expenses and an extra retirement cushion," says Godur.
Consider alternative investments like real estate
Rajneet Singh, co-founder and principal agent at LifebackTax, a tax resolution company, is big on real estate.
"Real estate offers rental income plus appreciation over time, which translates into immediate benefits and long-term ones," he says.
Leverage technology
Back in the day, folks didn't have an army of technology tools to help guide their financial life.
"Use financial apps to track expenses, automate savings, and make informed investment decisions. Many apps now offer personalized advice and real-time tracking, making it easier to adjust your strategy as needed. Staying informed and agile is key to making the most of your retirement savings," says Shawn Plummer, CEO of The Annuity Expert.
Try some of the online retirement calculators to help you determine how much you'll need to live the kind of life you want later.
Seek additional income opportunities
Truth is, given the cost of living, inflation, and crazy health care costs in retirement, you may need income beyond your 9-5 to fund the golden years.
"Embrace side hustles and gig work. These can supplement your income and retirement savings. In today's economy, relying solely on one job can be risky. Side hustles not only boost savings but also provide valuable skills and networking opportunities," points out Jeffrey Zhou, CEO and founder of Fig Loans.
Multiple income streams help mitigate risk if one source underperforms.
Keep debt in check
"Debt isn't just a financial burden; it's a retirement killer," says Godur.
Prioritize paying off high-interest debts aggressively. This strategy frees up more income to funnel into retirement savings and reduces the financial stress later in life.
Don't toss all traditions
While new thinking around retirement is needed, some advice is as good as it always was:
- Start saving early. Even small amounts will build your retirement stash given the power of compounding.
- Automate savings and investments.
- Maximize employer matching in your 401(k).
- Diversify, diversify, diversify.
The takeaway
Says Zhou, "Retirement planning today requires a more dynamic and adaptable approach. The economic landscape is shifting, so strategies must evolve to keep up. Embracing flexibility, safety nets, and consistent savings are key to financial security."
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