Life is good now, but do you know whether you’re on the right track?
The closer you get to retirement, the more you’ll wonder whether you’re really prepared for it. But the National Retirement Research Index (NRRI) does more than wonder. It determines how many households are considered “at risk” of lacking the finances to keep their current lifestyle once they retire.
When you’re younger, it’s easy to think of leaving the workforce as a time when you’ll travel, devote attention to a hobby, or simply enjoy life. But if your retirement income can’t keep up with the demands of your lifestyle, the changes ahead might not be so rosy.
Here’s what you can learn from the findings of the most recent NRRI:
Who is Considered “At Risk” in the Index
The Center for Retirement Research at Boston College explains that the NRRI determines who is considered “at risk” by comparing the current financial situation of a sample section of households with what they’re projected to need in retirement. In general, people who, on their current course, will not come within 10 percent of their retirement income goal fall into the “at risk” category.
Ten percent might not seem like a significant number, but it can mean tens or even hundreds of thousands in the long run. Think about how your lifestyle would change today if your earnings suddenly dropped by 10 percent. If your household income is $100,000 annually, that’s a $10,000 shortfall.
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The Good News: Awareness is High
It’s typical to think that people on their way toward retirement might not know they’re in financial trouble until it’s too late. But the index revealed that the opposite might be true. Although the NRRI found that 44 percent of all households participating in the sample were truly at risk, 48 percent of the group self-reported the same.
Knowing that you’re not on track with your retirement goals is winning a good portion of the battle. It’s much worse to lack preparedness without the knowledge of what’s ahead.
The key is learning what your goal is and making changes to get there. The NRRI provided information that participants needed to assess their unique situations. But a retirement calculator, such as the one available at NewRetirement, can give you the same information so you can work toward a new goal.
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What You Can Do to Prepare for Uncertain Times
Once you know what you’ll need, you can analyze your household finances to find ways to save and invest more. But the longer you wait, the more challenging it will be. A person saving from their 20s has an easier and less stressful path than one who begins a decade, two, or even three later.
You’ve got lots of options for retirement planning. Max out your 401(k) or IRA contributions to make the most of pre-tax savings. And when it comes to investing, think about hiring a financial planner to help guide you toward the best risk/reward investments.
If you can’t seem to save and invest enough, it’s time to think about cutting your expenses now and staying in the workforce longer. The fewer expenses you have, the more you can put toward your nest egg. And if you postpone retirement by just a few years, that nest egg can grow substantially. You’ll be more likely to qualify for your full Social Security income by waiting, too.
It’s not great news that 44 percent of the households participating in the NRRI fell into the “at risk” group. But knowledge is power. Visit NewRetirement today, and you’ll learn about ways to maximize your savings and investments, and minimize your risk of making unwanted lifestyle changes once you’re ready to retire.
