Figuring out how much money you will need in retirement can be challenging due to various factors such as lifestyle choices and life expectancy. Morningstar researchers have released an updated model predicting that 45% of U.S. households will run short of money in retirement, leading many to consider returning to work, going into debt, or reducing costs. Two main factors that significantly increase the chances of having enough money for retirement include investing in a workplace retirement account and delaying retirement.
Investing in a workplace retirement account, such as a 401(k) or 403(b), can greatly improve the odds of a successful retirement. By signing up for automatic contributions from your paycheck, you not only save money consistently over time but also potentially earn a matching contribution from your employer. By allowing your investments to grow over at least two decades, you benefit from compounding interest, significantly boosting the value of your portfolio. Although not everyone has access to a workplace retirement plan, saving outside of one, such as in an IRA, is still important for setting yourself up for retirement.
Delaying retirement as long as possible can have a positive impact on your retirement sustainability. By working longer, you reduce the amount of time you need your money to last, subsequently decreasing the amount you theoretically need at retirement. Additionally, delaying retirement can increase another source of income: Social Security. For anyone born after 1960, full Social Security benefits kick in at age 67, but delaying until age 70 can result in an increased benefit. Even if retiring at 70 is not feasible for everyone, working part-time or delaying retirement by a few years can still be beneficial.
It’s important to avoid the common pitfalls that can jeopardize your retirement savings, such as overspending and undersaving. By saving consistently in tax-advantaged retirement accounts throughout your working years and maximizing your Social Security benefits, you increase the chances of your income lasting throughout retirement. Morningstar’s researchers emphasize the significance of participating in workplace retirement accounts if available, as well as the advantages of delaying retirement to enjoy a higher success rate in maintaining financial stability during retirement.
In conclusion, planning for retirement involves considering various factors that can impact your financial well-being in later years. By focusing on saving consistently in retirement accounts and making informed decisions about when to retire, you can increase your chances of fully funding your retirement and achieving financial security. Morningstar’s research highlights the importance of proactive financial planning and strategic decision-making in ensuring a comfortable retirement lifestyle.
