Yogi Berra, the great New York Yankees catcher of the 1950s, once said, “If you don’t know where you’re going, you will end up somewhere else.”
If you don’t plan for retirement, that’s exactly what could happen.
No matter how far away your retirement, you can plan to live 20 years or more beyond the end of your employment. Have you thought about how you’ll spend that time? Have you thought about how you’ll afford your retirement dreams?
Familiarizing yourself with basic retirement-planning concepts will help you choose both a retirement lifestyle and a plan for making it happen. Trust us, it’s a home run.
First Base: How Much Do You Need?
Saving for retirement has never been more challenging—or more critical. Yet few have developed a plan for achieving their financial goals. In fact, 52% of American workers reported they are behind on their retirement savings goals.
To start, think about the type of lifestyle you’d like in retirement. How much money will you need to support it? Experts suggest that 60-80% of your current salary (adjusted for inflation) is a good estimate, but your income needs may be different.
So, put pencil to paper and do the calculation. You’ll already be well ahead of the game. About 56% of workers cannot quantify their retirement income needs.
Second Base: How Much Will Be Available to You?
Now that you have a ballpark estimate of how much you’ll need, compare that with how much will be available to you in retirement. Answer these questions:
- What sources of retirement income will be available to you?
- Are you eligible to receive Social Security benefits when you retire?
- What will your CalPERS retirement allowance be? Complete the CalPERS Retirement Estimate Calculator.
- Do you plan to return to work or seek other part-time income?
- Will you have supplemental savings income, such as a 457 plan or a 401(k)?
- Do you have existing savings, investments, and other assets?
Subtract the income you’re likely to receive from these sources from the total income you will need.
Third Base: How Will You Close the Gap?
If you fall short of the amount needed, now is the time to make a saving and investing plan.
One of the easiest ways to save for retirement is through a tax-deferred savings plan or supplemental savings plan. Check with your employer to find out what kind of plan they offer.
- State employees can participate in the Savings Plus program. Your contributions are tax-deferred and are made through easy, automatic payroll deductions.
- CalPERS offers a 457 deferred compensation plan for public agency and school members that offers a variety of investments to choose from. Start early and contribute as much as possible; time and tax deferral can make even small monthly sums multiply over the years.
- Individual Retirement Accounts (IRAs) are another way to save. For every year you have earned income, you are entitled to contribute to an IRA that will grow tax-deferred to help meet your retirement needs. Many banks, mutual fund companies, insurance companies, and other financial service providers offer regular and Roth IRA accounts.
When choosing among different investment alternatives, consider the time you have until retirement and invest as aggressively as your timeframe allows. Remember, the greatest risk you face is not having enough money to live the lifestyle of your choice.
Learn about other ways to save from your financial advisor
Home Plate: Follow Through on Your Plan
By focusing on how much income you’ll need, how much you’ll have available, and methods for closing the gap, you’ll be able to construct and follow through on a game plan for retirement. Remember, the magic combination of time and compounding interest means that even small, regular savings amounts can make a big difference.
Although you may face challenges saving for retirement, you also have many convenient choices. You have the power to choose today how you will spend your retirement tomorrow. Take full advantage of it.