An unpredictable economy and unforeseen life events can create a “financial vortex” that makes it difficult to save over the long term and invest for retirement, according to a recent survey from Goldman Sachs. The list of volatile economic factors won’t surprise anyone living in today’s economy who’s experiencing higher interest rates, inflation and the ongoing financial damage of a global pandemic. Combined with the unpredictable life events that can include career challenges, getting married, buying a house, caring for relatives and starting a family, these elements can make saving for retirement an afterthought.
Despite the steadily improving economy, “Competing priorities and limited financial resources make
it difficult to balance multiple goals,” the study’s authors wrote. Of the 5,261 people surveyed, 21% reported that this fact “is going to delay their retirement by four or more years.”
Do you have questions about building a financial plan and saving for retirement? Speak with a financial advisor who serves your area today.
How Financial Planning Early Can Help You Save for Retirement
Depending on what stage of life people are going through, would-be retirement investors should aim to align their financial plans to build the necessary savings they’ll need for a retirement that can last 30 years or even longer. Below are some of the main areas retirement savers should look, according to the report.
Early Years
The advantages of starting to save and invest for retirement early in life is well documented, but, as the study notes, anyone starting out in their career faces competing financial priorities. This can include paying student loans, saving an emergency fund and all the other costs of establishing themselves at a time when they’re making an entry-level income.
Improving financial literacy early in life can help young workers establish good financial habits, like spending less than they earn and avoiding unnecessary debt. This can also help instill the importance of early retirement savings and how to begin building a nest egg for the future. Yet, only 13% of working respondents correctly answered a sample financial literacy quiz given by Goldman Sachs.
Middle Ages
Besides getting married, starting a family and buying a home, this phase of life is full of conflicting financial priorities that need to be balanced. These can involve caring for children or older relatives, to relocating for work, going back to school or being downsized from a job.
Navigating multiple financial challenges can be helped by building an adequate emergency fund of at least three months of living expenses, although six months or even a year is significantly safer. However, 56% of the study’s working respondents had less than three months of savings, while 42% said they’d gone through a financial emergency that caused them to cease saving for retirement.
The Years Approaching Retirement
Making retirement savings the top financial priority becomes increasingly important from age 50 onward. For instance, you may want to review potential retirement resources, explore various tax minimization strategies and invest in a more balanced manner to account for both risk and gains.
Personalized retirement planning is important in this phase so that pre-retirees can see exactly where they’re headed and what they need to do. Of working respondents who had a retirement plan, 78% said they felt their retirement was on track, compared to 34% who had no plan. Among retired respondents, 78% of those with a plan felt secure about their retirement, versus just 56% who didn’t have a retirement plan.
The Years In Retirement
Creating a retirement paycheck after you’ve stopped earning income from a job requires juggling tax strategies, timing when to collect Social Security and choosing how to handle pension payments, as well as healthcare spending and insurance questions. Creating a realistic retirement spending and withdrawal plan is critical for this phase of life.
An income strategy that blends retirement withdrawals with annuity payments is a well-established approach to lower risk, stabilize retirement income and avoid the risks of inflation and running out of money. Nearly 60% of retired respondents using such a blended approach said they had a better lifestyle in retirement, compared with those relying strictly on investments or annuities.
Bottom Line
Preparing for retirement is a process that needs to start early in your career. It will continually change and shift during your working years, as you balance retirement plans with other financial priorities and life challenges. Having the knowledge that these things will happen and planning ahead for them is crucial in your quest to attain financial success later in life.
Retirement Planning Tips
- A financial advisor can help you build a retirement plan for the future. Finding an advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Are you curious as to how your retirement savings stacks up against your plans and dreams? Try using SmartAsset’s retirement calculator to learn more
Photo credit: ©iStock.com/Morsa Images, ©iStock.com/Mirel Kipioro
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