If a comfortable retirement is your top investing goal, you’re not alone. Seventy-seven percent of people polled in a 2017 PNC survey said the same. While investors often agree about what they want from retirement, their savings don’t progress at the same pace.
Forty percent of Americans say saving for retirement isn’t a priority, according to a 2017 GoBankingRates survey. At the other end of the spectrum are the super savers, who maximize every retirement savings opportunity. A Principal Financial Group survey found that 56 percent of these savers aim to save $20,000 or more annually for retirement.
Is investing the key to their success? Not necessarily. The PNC survey suggests their ability to save for retirement is more about habits than dollar amounts. Understanding the common threads these investors share can help strengthen your own retirement strategy.
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They’re early birds. “The most successful savers start early,” says Melanie Halstenberg, co-founder of Arch Financial Services in Fayetteville, West Virginia. Investors who start early have more time to capitalize on compounding interest and face less pressure to catch up later on. “It can mean the difference between having to save $300 a month in your 20s, to having to save $3,000 a month in your 50s for a decent retirement.”
In the PNC survey, 45 percent of respondents had been saving for at least 20 years. Fifty-three percent were saving in employer-sponsored plans, but 70 percent also saved with investment firms, banks and brokerage firms or in mutual funds.
What if you’re a 40-year-old who has yet to get started? “If you’re getting a late start on saving, you’re going to have to find a way to put more money away,” says Kevin Bauer, president of BCJ Financial Group in Salt Lake City. The first place to look is your employer-sponsored plan. In the best-case scenario, you’d max out your annual contributions, including the additional catch-up amounts you’re allowed to make once you turn 50.
When you’re unable to max out a 401(k), or you don’t have one, an individual retirement account is the next best alternative. If you were to save $5,500 annually in a Roth IRA beginning at age 40, you’d have more than $438,000 for retirement by age 67, assuming a 7 percent annual return. That doesn’t include the additional $1,000 in catch-up contributions for savers 50 and older.
They’re consistent. Nearly three of four investors polled in the PNC survey maxed out their employer’s plans regularly, and automated contributions helped them do it.
If you have access to an employer-sponsored plan, automation works in your favor in multiple ways. It allows you to set aside part of your salary for retirement automatically each pay period and raise your savings rate over time using a feature known as auto-escalation.
Steve Martin, certified financial planner and director at BKD Wealth Advisors in Oakbrook Terrace, Illinois, says auto-escalation helps address a key issue that often keeps investors from realizing their savings potential: lifestyle creep. The best way to boost retirement savings, he says, is to increase your savings rate every time you get a raise. What often happens instead is that a higher income leads to a more expensive lifestyle. “Auto-escalation helps address the problem of having your lifestyle continue to increase as your income goes up,” Martin says. By continually raising your savings rate, there’s less money leftover for consumption, which keeps your standard of living at a more sustainable level in retirement. From that perspective, auto-escalation is “a true win-win.”
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Automating isn’t exclusive to an employer’s plan; you can also schedule automatic contributions for an IRA or taxable brokerage account. But don’t just set it and forget it, cautions Tamra Stern, partner and director of wealth management at Main Street Research in Sausalito, California. “Check in on these savings to ensure that the funds you’re accumulating are working as hard for you as you are for them.”
Review the fees you’re paying for each investment and the rate of return. If automatic rebalancing is a feature of your investment accounts, consider how your asset allocation adjusts to keep pace with your risk tolerance and goals over time. That’s something 77 percent of the investors in the PNC survey do to make sure they’re on track with their objectives.
They don’t go it alone. Although investors in the PNC survey were overwhelmingly confident they could attain their retirement goals, they were also more likely to seek out professional advice.
There are no do-overs with retirement, Halstenberg says. A qualified advisor can show investors how much money they must save and how to make those savings last once they retire. That expertise is crucial if you waited five, 10 or even 20 years to begin saving. “Late savers can’t afford to lose a dime they’ve painstakingly saved.”
Financial advisors also can help you create a realistic retirement picture. “They can point out unexpected costs or hurdles that you otherwise would have missed,” says Greg Ghodsi, managing director of Raymond James 360 Wealth Management Group in Tampa, Florida.
They’re flexible. Successful retirement savers don’t always envision a traditional retirement. Three out of four respondents expected to continue working in a flexible, part-time or consulting role.
If you’ve underfunded your savings, how you make up for the shortfall matters. For example, you might consider investing more aggressively to make up for a savings deficit, or working longer. “If someone is working longer, their investment portfolio would actually have to carry less of the burden of meeting their retirement goals, suggesting they could accept a lower rate of return and take less risk,” Martin says. But that’s only if you’re working substantially past normal retirement age. Working one or two years more probably won’t be enough to alter your investing horizon or the level of risk you’ll need to take on to meet your savings goal, he says.
[See: 7 Things That Can Derail Your Retirement Investing.]
Still, whether you’re an early bird or a late bloomer, you won’t know what adjustments to make if you don’t have a plan to begin with. Look at it this way, Bauer says: “You wouldn’t start building a house without the blueprint.”
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