5 Signs You're Not Saving Enough for Retirement — Even If You Think You Are
It's easy to assume you're doing enough for retirement if you're contributing to a 401(k), watching your balance grow or hitting the occasional savings milestone. But according to retirement experts, those measures can create a false sense of security.
Here are five signs you’re not saving enough for retirement.
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1. You're Focused on Your Account Balance Instead of Retirement Income
One of the biggest retirement planning mistakes is judging success by how much money is in your accounts instead of how much monthly income those assets can generate.
“Having a large 401(k) sounds reassuring," said Christopher Stroup, a certified financial planner and owner of Silicon Beach Financial, "but if contributions are inconsistent, lifestyle spending keeps rising or most wealth is tied up in illiquid assets like a business or employer stock, retirement readiness may be overstated."
Shift your view of things. Don't zero in on the total you have in hand. Build your vision of your future around the distribution you can thrive on.
“Work backward from the income you'll need, not forward from the balance you have," said Will Allen, chartered retirement planning counselor and founder of Sentara Capital. "Once you figure out what you'll actually spend in retirement, subtract Social Security and any pension, and the gap is what your savings and investments will have to cover."
Andrew Gosselin, certified public accountant and senior contributor at Save My Cent, suggested using a sustainable withdrawal rate, between 3.5% to 4% to calculate this need.
2. Your Savings Rate Isn't Keeping Pace With Your Income
A growing salary doesn't necessarily translate into retirement readiness. Consistent saving habits matter far more than income level alone.
Stroup said that benchmarks, like saving three times your salary by 40 and six times by 50, can be helpful as rough guideposts, but they're not universal.
“For many high earners, targeting 15% to 25% of gross income toward long-term savings is a stronger indicator of progress," he said.
3. You're Not Accounting for Healthcare and Inflation
Many retirement projections underestimate two of the biggest long-term expenses: healthcare and inflation. Failing to account for either can dramatically reduce purchasing power.
It’s important to remember that Medicare isn't comprehensive. Stroup said retirees still face premiums, out-of-pocket costs, dental, vision and long-term care costs.
“I encourage clients to model healthcare separately rather than burying it in general spending assumptions,” he said.
To make up for this, Allen said you can fund your HSA full-tilt in your working years.
"Increasing your target for retirement income by 10% to 20% or establishing a separate fund for healthcare,” could make a difference, Gosselin said.
Inflation is always going to be a problem, too, eroding purchasing power over time.
"Even 3% inflation can significantly increase future spending needs, so retirement projections must account for rising costs, not just current expenses,” Stroup said.
4. You're Overlooking Taxes and Other Confidence Traps
Many savers make optimistic assumptions that don't hold up in retirement, Stroup said, such as common believing “concentrated stock positions will solve everything. Wealth on paper is not the same as diversified, spendable retirement income."
Another bad sign is forgetting about taxes.
“Most people have the majority of their investments in traditional 401(k) and IRAs," Allen said. "This means every dollar that comes out is taxed at ordinary income rates. You must factor taxes into your income needs."
Also, according ot Gosselin, some retirees may think that they can generate enough funds simply by selling their home, but it often isn’t enough.
5. You Don't Have a Catch-Up Plan If You're Behind
Another sign of not being fully prepared for retirement is knowing you have a savings gap but doing little to catch up.
And if you're behind right now?
“The first step is increasing savings rate," Stroup said, "ideally before cutting investments or chasing higher returns. From there, the goal should be to max out retirement accounts, using catch-up contributions, reduce lifestyle creep and create a tax-efficient investment strategy can all help."
There are only so many “levers one can pull to catch up,” Allen said. These are “save more, work longer or spend less. The good news is most people are able to meet their goals once they make the needed adjustments."
He said people not to wait until retirement is imminent to start planning.
Allen said two late-stage options remain: delaying retirement and delaying Social Security.
The first works because "it shortens the number of years your portfolio must support you while giving investments more time to grow,” Allen said. The second, because it increases your monthly benefit to a number that could uphold your lifestyle.
The strongest plans are proactive, regularly updated and designed to adapt as life, business and priorities evolve.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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