Today, Americans are living longer than ever, and that means longer retirements than previous generations. According to the U.S. Department of Labor, the average person spends 20 years in retirement — others say 30 years or longer.
Many financial advisors suggest you'll need 70-80% of your annual pre-retirement income to maintain your standard of living.
Here are five steps to help get you on the right path.
- Decide how you want your retirement to look. Whether you're planning to travel extensively or kick back by a lake, your income will need to support your lifestyle. Once you decide how you'd prefer to spend your retirement days, you can map out a strategy that could help get you there.
- Assess your finances. Take a realistic look at your current financial status. Look at how much you've saved, your debt, the amount of life insurance you have, and what you have available in emergency funds. Talk with a financial professional.
- Increase savings. It's never too early — or too late — to add to your savings. If you've got plenty of time before retirement, save as much as you can to take advantage of interest compounding. If retirement is near, look into catch-up contributions, which can help improve your financial picture. Even small gains matter: increasing your retirement contribution by one to 2% each year adds up over time. Evaluate your savings progress with our retirement calculator.
- Knock out debt. Those in the financial industry recommend keeping debt level manageable: no more than 35% of your income. Getting rid of high-interest debt such as credit card balances is always a good idea. And before you retire, you'll want to eliminate as much debt as possible so that you aren't servicing it with your savings. Consider paying off your home before you stop working, too.
- Review and revise your plan every year. Review with a financial professional every year to see if you're still on track. It's also a good idea to review your insurance coverage periodically, and any time your life changes, such as when you marry or have a baby. As you near retirement, you might decide to shift some of your savings to income-producing investments, such as annuities. Or, to keep your nest egg intact, your plan may be to continue working a few years more into retirement.