The 2017 Retirement Confidence Survey from the Employee Benefit Research Institute made a disheartening discovery; only six in 10 U.S. workers feel confident that they’ll be able to retire comfortably. That means 40 percent think they won’t.
That’s grim news. But you don’t have to fall into this group if you’re making the right financial moves to prepare for your after-work years.
It can be tricky to know for sure how confident you should feel about your nest egg, but some key signs can indicate that you’re on your way to building a happy and healthy retirement.
1. You’ve worked out the kind of retirement you want
The best way to prepare for retirement? You have to plan for it. This means knowing how you want to spend your after-work years. After all, if you plan on traveling the globe after retiring, you’ll need plenty of money. If you instead plan to spend more time visiting your grandchildren, reading, or playing golf, you might not need to save quite as much.
The key is to determine what kind of retirement you want long before it arrives. That way, you can financially plan for it. And if you’re in a relationship, remember that both you and your partner have to agree, and prepare for, the retirement lifestyle that suits you both. (See also: How to Find Your New Identity After Retirement)
2. You’ve set a retirement age
Do you know when you want to retire? You should. That decision can have a huge impact on your finances once you leave the working world.
If you were born between 1943 and 1954, your full retirement age is 66. If you were born after 1959, your full retirement age is 67. You can start claiming Social Security benefits once you turn 62. But if you wait until you hit full retirement age — or beyond — the money you receive each month will be far higher. In fact, if you start claiming your Social Security benefits at 62, your monthly payment will be lowered by 30 percent compared to how much you’d get at full retirement age.
And if you can hang on until age 70, you’ll collect a monthly benefit that is 132 percent of the monthly amount you would have received if you started claiming Social Security at full retirement age.
There’s nothing wrong with claiming your benefits early, if you’ve planned for this. But make sure you know how much money you’ll need before retiring early. (See also: 5 Questions to Ask Before You Start Claiming Your Social Security Benefits)
3. You’ve made a retirement budget
Before you hit retirement age, it’s important to determine how much money you expect to spend and receive each month once that steady paycheck has disappeared. This means it’s time to create a monthly retirement budget.
For income, you can include any pensions, Social Security payments, disability payments, rental income, or annuity income you plan on receiving. You can also include the amount of money you expect to draw from your retirement savings. For expenses, include everything that you’ll spend money on each month, including groceries, eating out, mortgage, auto payments, health care expenses, and utility bills.
Once you know how much you’ll be spending and how much you’ll be earning in retirement, you can better prepare for it. (See also: Here’s How You Should Budget Your Social Security Checks)
4. You’ve paid off your debts
The best way to increase the odds of a happy retirement is entering your post-work years without any debt. That means paying off your credit cards, paying off your mortgage, and making sure you don’t owe any money on your car once you’ve retired.
Paying off debt isn’t easy. It’s why so many of us are struggling under mountains of credit card debt. Before your retirement hits, though, start funneling money toward your debt. The more you pay off, the less financial stress you’ll face in retirement. (See also: The Fastest Way to Pay Off $10,000 in Credit Card Debt)
5. You’ve maximized your retirement savings contributions
You should be contributing to an IRA, 401(k) plan, or a combination of both. But as retirement gets closer, make sure you are contributing the maximum amount to these retirement savings vehicles. Doing so will leave you with the greatest financial cushion for retirement.
It might seem like a financial sacrifice to devote, say, 15 percent of your regular paycheck to a 401(k) account. But by saving that much, as opposed to 5 percent or 10 percent, you can dramatically increase the amount of money you’ll have when retirement arrives. (See also: 10 Signs You Aren’t Saving Enough for Retirement)
6. You’re playing catch-up
Once you hit your 50th birthday, you can contribute even more money each year to your 401(k) plan or IRAs. Take advantage of this benefit to provide a late-in-life boost to your retirement savings.
For the 2017 tax year, you are allowed to contribute up to a maximum of $18,000 in a 401(k) plan. But if you’re 50 or older, you can make what are known as catch-up contributions and contribute an extra $6,000 — meaning that you can put a total of $24,000 into your 401(k) this year. For the 2018 tax year, 401(k) contribution limits will be raised to $18,500, which means those age 50 or older can contribute up to a total of $24,500 per year. (See also: 6 Ways Meeting the 2018 401(k) Contribution Limits Will Brighten Your Future)
Traditional and Roth IRAs also have catch-up policies for investors 50 or older. For the 2017 tax year, you can contribute up to $5,500 in either form of IRA. But if you are 50 older, you can contribute an additional $1,000, meaning that you can save up to $6,500 this year in a Roth or traditional IRA. This will be remaining the same in the 2018 tax year.
7. You’ve prioritized your spending — even when it comes to your kids
It’s not easy telling your kids no, even when both they and you are adults. But when it comes to saving for retirement, you might have to do just this.
You might want to help your children pay for their college tuition. And hopefully, you’ve already saved for this. But if you didn’t, you shouldn’t be putting off saving for retirement to help your adult children pay for college.
Your children have other options when it comes to college: They can find a less expensive school, attend community college for two years, or apply for loans and grants. If you can’t afford to save for both retirement and your children’s college tuition, you absolutely must put saving for retirement first.
If you don’t? You might just become a financial burden for your adult children when you can’t afford to maintain a healthy retirement lifestyle. (See also: Are You Ruining Your Retirement by Spoiling Your Kids?)
8. You’ve tinkered with your savings formula
Early in your working days, it’s a sound strategy to invest in a riskier mix of stocks, bonds, and other investment vehicles. The potential rewards are higher, and you have more years to recoup whatever losses you might suffer from a potentially more volatile portfolio.
But once you get closer to retirement, it’s time to rebalance your investments to eliminate much of the risk. When you’re 10 or five years from retirement, you want a safer investment mix because time is running short. You won’t have as many years to recover from the downs that sometimes come with a high-risk, high-reward savings portfolio.