How to Determine If You're Saving Enough For Retirement
Whether you’re just starting out, in midcareer, or nearing retirement, there are steps you should be taking to plan for retirement.
- Do you have a plan and are you saving enough?
- Do you have the right mix of investments to help reach your goals?
- How will you generate enough income to cover living and healthcare costs?
The following steps can help you answer these questions and stay on track to achieve your goals for retirement.
Step 1: Define and Prioritize Your Goals
If you’re just starting your career, or five to 10 years into it, you may be paying off student loans, starting a family, or saving for a down payment on a home. As a result, many people simply delay saving for retirement until it’s too late to make up for lost time. You need a plan that allows you to start saving early in your career, greatly reducing the financial burden and uncertainty later in life.
“I work with a lot of clients who are in their 20s and 30s, and they are trying to plan for the long term,” says Kelly Kratz, a financial consultant for TIAA-CREF. “All of their dreams are different of course, but it can be a challenge when you’re trying to balance your life and figure out where you should be putting your money right now. Should you be saving for education, other things, now? How should you prioritize your retirement?”
How we can help: At no additional cost, one of our experienced financial consultants can offer our customized, objective advice to help you prepare for key life events and retirement by:
- Balancing your spending priorities
- Developing a step-by-step action plan with realistic savings goals
Step 2: Save on a Regular Basis - Don’t Wait for the “Perfect Time”
“A common mistake is waiting for that ‘perfect time’ to start saving for retirement,” says Joe Wilson, a financial advisor for TIAA-CREF. “Younger people may be waiting to start once they have enough to make a down payment on a home or finish paying for a child’s day care. But there’s no such thing as a perfect time for investing.”
Instead, Wilson works with clients to create a personalized report from TIAA-CREF offering practical ways to reduce current spending, increase income, and balance savings priorities. A key point: The sooner you start saving, the more time for earnings to grow through the benefits of compounding in a tax-deferred account, such as a retirement plan or IRA.
Important points to remember:
- A TIAA-CREF retirement plan is portable, so you don’t lose your vested retirement savings when you change jobs.
- If your employer’s retirement plan offers matching contributions, you should contribute at least enough to qualify for 100% of the match. Otherwise, you’re losing money that can help your savings grow faster. But keep in mind you can contribute whatever you feel you’re able and still qualify for part of the match.
- To make saving easier, automate your contributions through payroll deduction and consider increasing contributions by the amount you’re saving from the 2% cut in the Social Security deduction for 2011.
Step 3: Make Sure You’ve Set Up Your Retirement Plan the Right Way
Once you determine how much to contribute, decide how to divide up your money among different investments, such as stocks, bonds, real estate and guaranteed accounts. This requires determining your goals, when you plan to retire, and your tolerance for short-term losses caused by market fluctuations.
Our personalized advice takes into account your entire retirement savings and investment strategy.* Based on objective criteria, TIAA-CREF’s financial consultants can recommend an investment portfolio tailored to your personal needs, following up with adjustments during annual financial checkups.
“We want to make sure that we give you advice related to your risk tolerance and time horizon, and we really want you to meet with us at least annually to make sure that you stay on course,” says Al Gonzalez, a financial advisor at TIAA-CREF.
If you’re looking for a simplified approach to investing for retirement, consider TIAA-CREF Lifecycle Funds. You only have to choose the fund matching your expected retirement date. All other investment decisions are handled automatically, including shifting to a more conservative mix of investments as you move closer to retirement. As with all mutual funds, the principal value in a Lifecycle Fund is not guaranteed. Also, please note that the target date of the Lifecycle Fund is an approximate date when investors plan to begin withdrawing from the fund.
To set up a consultation, contact us.
* Advice provided through Ibbotson Associates.
Step 1: Revisit your retirement and other financial goals to ensure you’re up-to-date.
When you’re getting closer to retiring, you need to determine how you plan to spend your retirement savings to support different financial needs.
“I find that many midcareer clients wait until they are in their mid to late 50s and early 60s to start working on comprehensive and personalized retirement planning. Often in our midcareer period, we focus on current financial needs and career issues and we believe we still have plenty of time to get ready for retirement... that can be a fatal mistake,” says Al Gonzalez, a financial advisor for TIAA-CREF.
To avoid this common mistake, you should:
- Plan for current short-term financial needs and long-term investment objectives.
- Create a customized retirement plan, based on the personalized, objective advice offered by TIAA-CREF, that you revisit each year to stay on track
- If you’re saving too little, look for tax-deferred ways to save more, such as supplemental retirement plans, annuities and IRAs. Take advantage of catch-up contributions if you’re 50 and older.
Step 2: Regularly revisit your investment mix as you get closer to retirement
As you get closer to tapping into your funds for retirement, you’ll need to adjust your investment mix of stocks, bonds, real estate, and guaranteed accounts to reduce risk exposure. Your tolerance for fluctuations in the market will diminish because you have less time to recover from a downturn. As a result, you should reduce the percentage invested in more volatile investments, such as stocks, and increase the percentage in more stable investments, such as bonds and guaranteed investments.
Scott Heise, a TIAA-CREF financial advisor, uses the following approach with midcareer clients 10 to 15 years from retirement: “I want to make sure that their asset allocation – investment mix – is constructed properly, and that it’s a proper mix of different investment types to properly diversify the portfolio. They need to be thinking about the next critical 15 years or so until they want to retire to save as much as possible. Instead of thinking about their day-to-day financial needs, they should be focusing on their long-term financial goals.”
If you’re looking for a simplified way to create and maintain a diversified portfolio as you prepare for retirement, consider TIAA-CREF Lifecycle Funds, a one-decision strategy for investing. You only have to choose the fund matching your expected retirement date. All other investment decisions are handled automatically, including shifting to a more conservative mix of investments as you move closer to retirement. As with all mutual funds, the principal value in a Lifecycle Fund is not guaranteed. Also, please note that the target date of the Lifecycle Fund is an approximate date when investors plan to begin withdrawing from the fund.
Step 3: Consider what your goals may be during retirement
Even though you’re drawing down some of your funds when you retire, you’ll still need a certain amount of growth in your portfolio to reduce the risk of outliving your savings. It’s important to think through your different goals for all phases of retirement, which can last 20 to 30 years or longer.
Depending on your financial needs in retirement, you can receive income in different ways. TIAA-CREF offers a wide range of income options that you can combine to meet various needs.
“TIAA-CREF has a lot of flexibility and choices for tapping your retirement savings. I work with my clients to understand how best to match our income options to their expected financial needs in retirement,” says Al Gonzalez.
To set up a consultation, contact us.
Any guarantees under annuities issued by TIAA are subject to TIAA's claims-paying ability. Payments from variable accounts will fluctuate based on investment performance.
TIAA-CREF products may be subject to market and other risk factors. See the applicable product literature or visit tiaa-cref.org for details.
Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, are not deposits, are not insured by any federal government agency, are not a condition to any banking service or activity and may lose value.
TIAA-CREF Individual & Institutional Services, LLC, and Teachers Personal Investors Services, Inc., members FINRA, distribute securities products. Annuity contracts and certificates are issued by Teachers Insurance and Annuity Association (TIAA) and College Retirement Equities Fund (CREF), New York, NY.