Employees may be looking for a magic formula to perfect time to retirebut they will have a hard time finding it.
“People think about retirement and they say, I want to retire at 65, or I want to make a million dollars, but they have no idea how much money they need to make,” says Denny Artache, President and Chief Executive Officer of Artache Financial Consulting. Financial. “It takes planning and realistic expectations.”
Sixty-nine percent of Americans retire at age 66, according to the Life Insurance and Market Research Association. Fifty-one percent retire between ages 61 and 65, and 89% retired at age 75. However, more than half of Americans plan to work longer to save more for retirement, and 41% say it will take “a miracle” to be financially secure, according to data from the Natixis Global Retirement Index.
Read more: Baby boomers can survive their 401(k) savings — unlike their predecessors with pensions
While it’s tempting to have a number in mind, it won’t mean anything without proper planning, which needs to be done years or even decades in advance, says Artache. Considering factors like Social Security paymentspensions and stock market returns should all factor into a long-term retirement plan.
“There’s no straight-forward rule that you have to set aside 30% of your income to be successful in retirement, because at the end of the day, if you have too much debt or obligations, how can you invest to your retirement? he says. “A lot of people say, ‘What’s my number? I need a million. I need two million. They base it on what they can earn in the stock market and then retire for the rest of their lives. But the market is down and we don’t know what the future holds. Inflation is crazy.
Planning should start today, with establishing sound financial habits, such as paying yourself first and investing in a retirement account at work. Artache also recommends being careful with spending and avoiding debt.
Read more: HR 101: How to help Gen Z workers get a head start on retirement
Artache compares financial planning to diet and exercise. Although he would like to eat pizza every day, he also wants to stay fit and lead a healthy lifestyle. The same principles can also be applied to financial well-being.
“It starts with sticking to a budget and not overspending each month. And that’s not fun, that’s not exciting,” he says. “That’s the problem with retirement planning – you can control your investments and their growth, but you also have to control your behavior.”
Although each individual’s financial situation is unique, Artache offers some guidelines for savers. He advises people to set aside 20% of their cash assets for unexpected expenses that could prevent them from saving for retirement in the event of a problem, such as a car repair or household expenses. Employees should also get into the habit of saving a few hundred dollars from each paycheck in a retirement account, as early in their career as possible.
“Keep your debt low. Invest in yourself like clockwork,” says Artache. “If you can’t make ends meet while you’re working, what makes you think you’ll make it in retirement? If you don’t start having it now, you won’t. ‘ll not retire.