You’ve worked hard since you were young. You’ve contributed to your 401(k), tried to make responsible choices with your finances and you can see retirement right around the corner. But will your retirement savings really be enough?
Even with a carefully planned retirement budget, the rising cost of healthcare and any unexpected expenses could take a bigger chunk of your savings than you realize. Because of this, more and more people are facing a retirement gap.
What is a retirement gap?
A retirement gap is when the amount you’re on track to have when you retire is less than what you’ll actually need to retire the way you want.
To figure out if you have a retirement gap and how much it is, start by looking at all of your potential retirement income sources including your 401(k), Social Security, IRAs, pension and other savings and investments, as well as those of your spouse, if applicable. Next, make a reasonable estimate of what amount you’ll need, either as a monthly or lump sum, for your retirement.
There are a number of online calculators available to help you determine the gap amount, but it can be tough for a Web tool to accurately predict your future. Meeting with a financial advisor can give you a more accurate picture of what’s ahead.
Don’t be intimidated if you have a retirement gap. There are steps you can take now to bridge the retirement gap, keep your savings intact or even increase them and ensure that you can sustain yourself throughout retirement.
How to close the retirement gap
Ramp up your savings
Take a look at your budget and adjust your spending habits on things like restaurants and vacations, and transfer high-interest credit card balances to low-interest cards to pay down balances faster. Then consider maxing out catch-up contributions to your 401(k), supplemental retirement plan or IRA.
Wait to retire
Your Social Security benefits increase by a certain percentage if you delay retirement beyond full retirement age, up to age 70. The chart below shows you how much more your benefits increase for each year you delay retirement, based on the year of your birth.
Reconsider your investment strategy
Rather than moving all of your money to more conservative options as you age, talk to a financial professional to help you find a mix of investments that can grow your retirement funds. Setting up a Share Term Certificate ladder with staggering maturity dates can also provide rolling funds to help you bridge the retirement gap.
Adjust your retirement expectations
Many of us dream of a retirement that involves a hammock on a tropical island, but a more realistic view may involve continuing to work part-time, living more simply than you did when you were in the workforce or living an entirely different lifestyle.
No matter how close you are to retirement, there are strategies you can use now to help you bridge the retirement gap and ensure you’ll have the money you need for the rest of your life.