How to Cope With Retirement Sticker Shock
These strategies will make a seven-figure retirement goal manageable
If you calculate how much you need to save to completely stop working for a 20- or 30-year retirement, you'll likely arrive at a very large number. To produce an annual income of around
Break it up into steps.
Instead of focusing on the final retirement account balance you hope to accumulate, think about smaller and more immediate financial goals. "If you break it down into smaller segments, it is much more reasonable," says
Save over many years.
If you start saving for retirement at age 25, you can reach
Boost your contributions over time.
Workers with small salaries may not be able to save 10 percent of their paychecks at first. Start small and boost your contributions when you get a raise or bonus, or when you are able to eliminate other expenses from your budget. "I like to refer to saving as paying a retirement bill that is built into your normal budget," says
Take advantage of employer help.
If your company provides a traditional pension, you can get away with saving much less on your own. Even a 401(k) match can significantly help you to reach your retirement goal. A 25-year-old with an employer 401(k) matching contribution of
Minimize taxes and fees.
Calculate whether it is better for you to defer taxes on your retirement savings using a traditional retirement account or to pre-pay some of your taxes using a Roth 401(k) or Roth IRA. Minimizing the taxes you pay on your nest egg will provide more money for spending in retirement. It's also important to choose investments with low expense ratios. Paying even a 1 percent fee on long-term investments could cost you thousands of dollars over your lifetime.
If you've been paying into the
Consider delaying retirement.
If you calculate an unmanageably large sum needed for retirement at age 65, think about pushing your retirement age back a year or two. Working longer gives you more time to save and reduces the number of years your savings must last. If completely delaying retirement is undesirable, consider taking on part-time work in retirement. "If you can make enough part-time to reduce the amount you need to take out of your retirement account, then you are going to extend the life of your portfolio," says Mayabb. A combination of
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Personal Finance - How to Cope With Retirement Sticker Shock
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