Hoping to retire comfortably in your 60s? Many financial experts agree that to maintain your quality of life before retirement, you will need 80% of your current income each year.
Are you on track to achieve this goal? If you recognize any of the red flags below in your spending habits, the answer might be a resounding “no.”
Read these warning signs so you can rework your retirement savings plan and find ways to make more money as needed, starting today.
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1. You don’t get a 401(k) match from your employer
Although US employers are not legally required to contribute to their employees’ 401(k), retirement plan or other retirement accounts, many of them do.
If you’re lucky enough to work for one of these companies but aren’t capitalizing on a 401(k) match, you’re essentially wasting free money.
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2. You’re not maximizing your 401(k) contributions
If you’re under 50, the maximum amount you can store in your 401(k) in 2022 is $20,500. Employees 50 and older can add an additional $6,500 to this amount.
To save the amount of money you’ll need in retirement, consider maxing out your 401(k) each year. Additionally, if you don’t contribute to your 401(k), you’re missing out on tax benefits that might be significant enough to warrant a tax refund.
3. You haven’t opened an IRA
A 401(k) with employer matching can provide a solid foundation for retirement, but employer-sponsored retirement plans typically limit the kinds of investment choices you have for your money.
Contributing to an Individual Retirement Account (IRA) expands your investment options while providing more tax benefits that increase your ability to save.
4. You don’t deposit savings automatically
If you enroll in your workplace 401(k), contributions will generally be made through automatic payroll deductions. This means that once you set it up, your contribution is withdrawn from your paycheck and deposited automatically.
Many banks have a similar option for savings accounts. If you receive your paycheck by direct deposit, you should be able to choose a fixed amount that will automatically switch from checking to savings and start make the most of your salary.
If you are prone to overspending or often forget to include savings in your budget, an automatic savings system can be a big help.
5. You rely on your home to fund your retirement
The wild swings in the housing market over the past 20 years show exactly why you can’t plan your retirement on the equity in your home alone. It is impossible to know what your home will be worth years or decades from now.
As anyone who owned a home in 2007 can tell you, a home can quickly go from an asset to a liability.
6. You keep piling up debt
Preparing for retirement is not just about saving money, but also eliminate as much debt as possible before you retire. This is especially true for high interest consumer debt which is growing exponentially year over year.
If you can’t afford to pay your debt on the salary you have now, you almost certainly won’t be able to keep up with the payments once you live on a reduced income.
7. You spend more than you earn
Since saving for retirement requires you to make constant contributions for decades, regularly spending more than you earn can reduce your ability to retire.
Overspending usually means racking up debt – and the more debt you have, the harder it will be for you to retire.
8. Your emergency fund is usually empty
Emergency funds are short-term savings that you set aside specifically to deal with a financial crisis, such as unexpected medical bills or a layoff.
If you don’t have enough cash on hand to deal with an emergency, you’ll likely have to go into debt or dip into your retirement savings to compensate.
9. You rely on someone else to fund your retirement
Maybe you are sure to inherit a good amount of money from your parents. Or maybe you’re relying on a younger child or relative to help keep you afloat after retirement.
But shaping your entire retirement strategy around someone else’s financial decisions can backfire terribly.
After all, you can’t stop someone from terminating your will, just like you can’t dictate how a loved one spends and invests. Treat a potential inheritance as a possible windfall, not a certainty.
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10. Your investment portfolio is not diversified
A diversified portfolio can help you stay financially resilient in the face of economic turmoil. Instead of losing everything if the single stock you invested in goes bankrupt, you have several types of investments, some of which could perform well during tougher times.
11. You haven’t reassessed your investment strategy in years
A decades-old investment strategy that worked in your 30s might not be appropriate in your 50s.
Risky investments that seemed worth it when you were younger might not be as wise as a stable, lower-risk approach as you get older. Many financial advisors say that the closer you get to retirement, the more important it is to switch to lower-risk investments.
It’s also crucial to update your strategy whenever you experience a major change in your life, such as getting a new job or adding a new member to your family.
12. You don’t have a budget
If your current financial strategy is somewhere between “sloppy” and “non-existent,” it’s almost certain that you won’t have enough money set aside in time to retire.
Saving the right amount for retirement requires you to know how much money you have right now so you can make informed decisions about how to spend or save that money. Without a budget, planning for your retirement can be more difficult.
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At the end of the line
It’s never too late to start saving. No matter how close you are to retirement, addressing these warning signs can help get you back on track to achieving your goals.
And if you’re very ambitious, you might surprise yourself and end up saving enough to retire earlier than planned.
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This article 12 signs your retirement savings aren’t enough originally appeared on FinanceBuzz.