Review your plans for retirement
Revisit your plan for retirement and, if necessary, make important adjustments to keep your savings on track.
It's likely your financial situation has changed since you first implemented your plan for retirement. You may have had children, received a promotion or started caring for an aging parent.
Michelle Fuller, vice president and benefit advisor for BancorpSouth in Hattiesburg, Mississippi, suggests sitting down yearly, if not twice a year, to evaluate your income and expenses. Doing so allows you to cut unnecessary costs and allocate extra income to important financial goals.
Saving for retirement.
You may need to save at least 10 percent of your pay plus employer contributions over your entire working career to have enough income in retirement. This assumes you may need about 85 percent of your preretirement income to maintain your current lifestyle after you retire. Each individual's situation is unique, though, so your savings and postretirement needs may differ. As your career advances, you should be able to contribute more. Fuller advises using a layering strategy by contributing to several retirement funds.
"It's a good idea to contribute a portion of your pay as both pretax and after-tax for your retirement fund to give you flexibility," she says.
Invest in disability insurance.
In your 30s and 40s, disability insurance is fairly inexpensive and can be highly beneficial. "The great thing about it is that you can find conversion policies that can be changed into long-term care insurance," Fuller says. If your current disability policy doesn't convert, consider reviewing your insurance to see whether this option benefits you.
Don't stop saving.
If your emergency fund adds up to the suggested six months to one year of expenses, don't quit now. Set your own goal and index it, Fuller says.
"Your goal could be to put away 10 percent this year and then save 12 percent the following year, continuing to increase your savings each year," she says. If you have children, consider establishing or increasing your contributions to a college fund.
Boost your net worth.
Diversifying can be a key to growing your net worth. Review your investment option selections, and speak with a financial professional to discuss other options.
"In your younger years you can generally weather the ups and downs of the stock market much more," Fuller says. "As you approach retirement, you should generally be pulling back."
For a better picture of where you stand, review your net worth at least annually or as significant events occur.
Stay on track.
Are your retirement savings on track? See what you might need with our My Principal® Edge Milestones Retirement Outlook Calculator.
- Based on analysis conducted by the Principal Financial Group®, August 2013. The estimate assumes a 40-year span of accumulating savings and the following facts: retirement at age 65; a combined individual and plan sponsor contribution of 12 percent; Social Security providing 40 percent replacement of income; 7 percent annual rate of return; 2.5 percent annual inflation; and 3.5 percent annual wage growth over 40 years in the workforce. This estimate is based on a goal of replacing about 85 percent of salary. The assumed rate of return for the analysis is hypothetical and does not guarantee any future returns nor represent the return of any particular investment. Contributions do not take into account the impact of taxes on pretax distributions. Individual results will vary. Participants should regularly review their savings progress and postretirement needs.
- Assuming preretirement annual gross income of $40,000. AON Consulting's 2008 Replacement Ratio StudyTM: http://www.aon.com/about-aon/intellectual-capital/attachments/human-capital-consulting/RRStudy070308.pdf.