Retirement Plan Checkup – Are You Saving Enough? - Milestone Wealth Management
Are you saving enough for retirement

Retirement Plan Checkup – Are You Saving Enough?

I was thinking this morning that I hadn’t yet scheduled my annual physical. Sometimes, when we believe we’re doing a good job at something, like taking care of ourselves, we forget to ask an expert’s opinion.

After all, I’ve always been an active person. I love hitting the sand for some beach volleyball, and I try balancing my diet with healthy meals. But now that I’m a little older, now that I’m married to an amazing woman, Racheal, with whom I hope to grow an equally amazing family… well, getting my doctor’s stamp of approval is now more important to me than ever.

The same is true of retirement savings. We may believe we’re doing enough, but only through a full checkup with a trusted financial professional can we really know if our strategies are healthy or require immediate attention.

Let’s take a look at a couple I recently met – we’ll call them Frank and Emily. Their concerns are typical: Are we saving enough for retirement?

Obviously, there isn’t any one-size-fits-all answer to this question (that would be too easy, wouldn’t it?). While you aren’t going to learn whether or not you’re saving enough for retirement from Frank’s and Emily’s unique circumstances, you might discover some takeaways to consider.

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Frank and Emily

When I met Frank, 57, and Emily, 54, they were worried their $400k in savings wouldn’t be enough for retirement. Or, rather, that they should have saved more by this point in their lives.

With a combined income well above California’s median for middle class earners, we all agreed Frank and Emily could and should have saved a little more by now. But whether or not the $400k was enough for this point in their lives, the answer depended on several questions:

  • Would they receive pensions?
  • Did they own or plan to own any income-producing assets, such as real estate?
  • Would they be downsizing their current home for something less expensive?
  • How was their heath? How long did they expect to live into retirement?
  • What lifestyle did they hope to enjoy in retirement?
  • …and many more.

Frank and Emily are both in great health, but do not have pensions. They do plan to downsize their home, and that could contribute a nice lump sum to their retirement savings.

When we discussed the lifestyle they hoped to enjoy, Frank and Emily expressed their love for travel. “Number One on the bucket list,” said Emily, “is an RV. We’d love to be able to just take off for weeks at a time and really get to see America.”

I can certainly relate to this dream. I love travelling, meeting new people, and trying new things – I told them not to be surprised if I showed up knocking at their RV with a suitcase… and they got a kick out of that.

But in all seriousness, if Frank and Emily are going to make a reality of their dream, they will need to modify their strategy. Here are two of the many tactics we discussed for improving their plan:
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1. Save more aggressively for retirement

The kind of travel Frank and Emily hope to enjoy will require financial independence. Back in July, we discussed financial independence on my podcast. It means different things for different people, and for this couple it will require a more aggressive approach to savings.

First, we looked at Emily’s 401(k) and found an opportunity to receive the employer’s full 3% match. This “free money” would provide a real boost to their savings over the next ten-or-so years until retirement.

Next, we discussed using a Roth IRA for tax-deferred growth. Frank’s and Emily’s combined income and tax filing status (less than $184,000 and married filing jointly) allowed them to contribute the annual maximum of $5,500 to a Roth IRA. But because they were in their 50s, Frank and Emily were qualified to contribute an additional $1,000 “catch up,” bringing the total contribution to $6,500.

After carefully reviewing their finances, they agreed that they could afford to each contribute $500 monthly to their Roth IRA’s.

While $500 is not huge, consider what Forbes had to say about small increases to savings:

“In a tax-deferred account and figuring a 4% annual return (compounded monthly), putting away just $500 a month would produce $74,000 in 10 years. That may not seem like much. But at current rates, for a couple that would be 68 years old then, that sum would buy an immediate annuity paying out $433 a month until both spouses are dead.”

That’s actually a pretty big deal, and Frank and Emily were surprised to learn of the possibilities a strategic increase in savings could provide.

2. Analyze cash flow

As I mentioned, Frank and Emily plan to downsize their home before retirement. And even though they own their current home, downsizing should reduce property taxes, utility costs, upkeep, and other expenses.

But they will also need to consider the cost of owning, operating, and maintaining an RV. That isn’t cheap.

Before we can make a reality of retirement dreams, we need to know how much those dreams are going to cost us. We need to sit down and evaluate our expected cash flow.

A qualified retirement income planning specialist can help to answer these important questions:

  • What is my desired income in retirement? Is that figure realistic?
  • What will be my expenses in retirement? Have I thought of everything?

There are many factors to consider when estimating your cost of living in retirement. For example, healthcare is the greatest retirement concern for most Americans. Last month, I wrote about how to prevent healthcare costs from plundering your retirement. And with 55% of Americans fearing that healthcare costs will devour their life savings, it’s important to evaluate this expense in a cash flow analysis and begin preparing now.

Frank’s and Emily’s Outlook

So, while I can’t tell you in this article whether or not $400k is a good amount for you to have in your retirement savings, we can tell you if it’s enough for Frank and Emily…

After a thorough checkup and assuming they implement changes to their strategy, the prognosis is doable. Frank and Emily still have their work cut out for them. They’ll need to research the costs of living their dream, and they may have to accept a compromise here or there.

For some, $400k is more than enough. For others it’s not. Whether or not someone is saving enough for retirement will depend on a number of factors some of which include the lifestyle they hope to enjoy, when they plan to retire, and if they plan to continue working part-time.

If you would like to know if you are saving enough for your own retirement, speak with a qualified retirement income specialist to schedule a “retirement plan checkup.”