I Need to Retire in 15 Years but I Haven't Saved for Retirement
No guaranteed shortcuts exist when saving for retirement since many investments offering a higher rate of return carry a higher risk, while safer saving options might not provide the return needed for retirement at a preferred age. Taking control of your finances and starting a savings program must be your first step on the path to retirement since you need liquid cash to fund investments.
Financial Needs in Retirement
Calculate how much money you will need to live on in retirement. Add up all of your expenses in the past calendar year, such as property taxes, utilities, groceries, fuel and insurance premiums. Some of these costs, such as fuel, may decrease in retirement as your need for a daily commute to work ends. Other costs, such as insurance premiums, may increase with age. When you have an estimate of the funds you need per year, look up the tax rate for that amount of income and calculate the taxes owed on the total. Add the tax bill to the amount of income needed.
Assess General Savings and Miscellaneous Retirement Income
You may have savings and assets even if you have not started a formal savings plan for retirement. For example, most workers, whether payroll employees or self-employed, pay enough Social Security tax to qualify for a monthly pension under the program. Early withdrawal of reduced Social Security funds begins at age 62, while full benefit collection starts at age 65. The Social Security website features a calculator that estimates your future benefit if you do not receive an annual paper statement listing this total. If have money in checking or savings accounts, consider moving the excess cash and savings into retirement accounts.
Savings Versus Needed Funds
After determining the amount of money you need in retirement, your current savings and the amount of your Social Security pension, calculate the portion of your income that can be directed to retirement investing per month. As of September 2012, a return estimate of 4 percent is most commonly used in retirement planning. Another recommended estimate is to accumulate enough money to live on for 30 years while taking annual withdrawals of 4 percent, adjusted annually for inflation, from your accounts. If you want to retire within a fixed amount of years, you must determine if you can save enough each month within that time frame for the rate of return to compound to a sum sufficient for you to live off of for 30 years, given your expected expenses and alternate income from sources such as Social Security.
Pare Back Expenses
If you currently enjoy a high annual income but are willing to live on considerably less in retirement, you may be able to save enough in 15 years to retire without adjusting your current lifestyle. However, when your projected savings and rate of return do not meet the amount needed to retire, you must consider working until later in life or reducing expenses now in order to save more. If you own a home with equity, you may consider downsizing and investing the equity. Cutting back on luxury purchases and vacations are big money savers, while switching to generic grocery items and walking instead of driving are small savings that add up over time and help you inch closer to your goal.
Consider Investment Options
If you started to save for retirement late, consider speaking with a financial adviser to develop an investment plan that safely balances risk and return. While high-risk investments could grant you a return that reduces the number of years you must save for retirement, the possibility of ending up without your savings is often too great. An adviser will help you explore individual retirement arrangements, mutual funds, annuities, 401(k) plans and other saving options and explain the nuances of each, such as tax deferrals, guaranteed funds and risk.
Ashley Mott has 12 years of small business management experience and a BSBA in accounting from Columbia. She is a full-time government and public safety reporter for Gannett.