Most people plan to retire in their early to mid-60s. However, that won’t be an option for everyone, especially if you think that your Social Security benefits will not be enough to support you. Financial planning must begin early in your adult life. Most advisors agree that you will need about 70-80% of your current income to sustain your lifestyle. So, are you on track to reach your goals and retire by 65? If you recognize any of these red flags, then your answer is probably a “no.” For those who see any of these 7 signs that you aren’t saving enough for retirement, then it’s time to make some changes.
7 Signs That You Aren’t Saving Enough for Retirement
1. You don’t live below your means.
The first rule of budgeting that every adult must learn is how to live below your means. Simple math will show you that it isn’t sustainable to consistently spend more than you earn. If you want to remain financially independent, you have to know how to make a budget, but also have enough discipline to stick to it.
If you frequently overspend, then you are undercutting your long-term goals and future stability. Retirement planning requires careful money management and regular contributions to your dedicated accounts. When you outspend your budget every month, it becomes incredibly challenging to save anything. In the worst-case scenario, you won’t have anything saved, which means you won’t be able to afford to retire. That’s why it is so important to learn this lesson early and ensure that you have enough to live well in retirement.
2. You continue to accrue debt.
Although this goes hand in hand with the first point, it is so detrimental that it deserves its own recognition as one of the worst signs that you aren’t saving enough for retirement.
At some point in our lives, nearly everyone will carry some amount of debt. But retirement planning also requires you to eliminate it before you are living on a fixed income. If you are already struggling to cover your expenses while you are earning a salary, imagine how much more difficult it will be when you have to rely on your benefits and retirement accounts.
Sadly, many people who continue to accrue debt after they retire quickly burn through their retirement savings. If you still have debt in your later years, retiring may not be an option for you.
3. You don’t have a retirement account.
This one should seem obvious, but you should have dedicated retirement accounts to help you with your financial planning. There are several different types of accounts that provide different contribution thresholds and tax benefits for you.
Most people have a combination of IRAs, 401(k)s, life insurance, and other investment vehicles in their portfolio. But your ultimate goals will dictate how much you should save and which ones are right for you. You will need to discuss it with your financial advisor to determine which type of accounts are best suited to your long-term goals.
4. You aren’t maxing out your contributions.
One piece of advice I got as a young investor was to max out the accounts with contribution limits. This is because they offer the greatest tax advantages and return on your investment. Therefore, maximizing your contributions is a good habit to get into.
While it may not be possible every year, hitting these thresholds will optimize your savings plan. And, it will help you get the most from your hard-earned money. For 2022, you can contribute a maximum of $6,000 to your Roth IRA and a total of $20,500 between your 401(k)s. This amount increases to $6,500 and $27,000 for those over 50 who are eligible for “catch-up” contributions. But, these limits will increase in 2023 to help compensate for the increased inflation rates to help you save even more.
5. You don’t take advantage of employer retirement benefits.
You will rarely find employers who offer pension plans as part of their retirement package anymore. Instead, they opt for 401(k)s and contribution matching plans. If your employer offers this and you aren’t taking advantage of it, then you are leaving free money on the table. Those who are lucky enough to have this option need to take advantage of it.
And the best part is that you don’t need a ton of money to get started. Even small, consistent contributions can grow into a large sum if your employer is matching a percentage. And with compounding interest, it can grow into a substantial sum over time.
6. You aren’t investing at all.
One of the most significant signs that you aren’t saving enough for retirement is that you are not investing. It can be a difficult decision to place retirement planning before your immediate financial needs. But, you have to start at some point. It is impossible to save enough of your salary to fund your retirement.
The longer you put it off, the harder it will be to reach your retirement savings goals. As previously mentioned, you don’t need a huge sum of money to get started. However, the sooner you begin investing, the better off you will be when you finally decide to retire.
7. You don’t evaluate or adjust your money management strategies.
Change is a natural part of life. As we grow, we change as people, and our financial situations change right along with us. So, it’s important to revisit your money management strategies after reaching important milestones or experiencing major life changes.
You have to adapt and adjust to your new circumstances. But, it can be overwhelming when faced with these monumental decisions. Remember that you don’t have to do it alone. Find a financial advisor you can trust to guide you through these important decisions and help you build a solid foundation for your future.
What do you think are the most significant warning signs that you aren’t saving enough for retirement? Share your thoughts in the comments below!