10 Ways to Make or Break Your Retirement

Life is what happens while we’re making other plans, and that is doubly true when it comes to planning your retirement. Half the battle is planning your retirement wisely, but the other half is overcoming obstacles that inevitably happen along the way. We’d like to share our top Makers and Breakers of your retirement future.

Making It

  1. Many articles give advice on “How to Make It To a Million in Retirement” – and most of them recommend starting to save around the age of 10. Just kidding – the age is 25, the time you start your first “real” job out of college. Since not many quarter-lifers have the maturity to consider their future financial well-being, we’ll just lay out the math for you. If, at age 25, you save $4,682 per year, you may just reach $1M by 65, assuming 7 percent annual returns. At age 35, the annual savings jumps to $9,894 to make it to the Big “M” assuming those same returns. At 45, it’s $33,798; and at age 55, you’d have to put away $67,643 per year if you want a chance at becoming a millionaire (or invest your retirement fund in lotto tickets and cross your fingers!*) . *We don’t recommend that last suggestion.**This is all hypothetical, based on 7 percent rate of return.
  2. Live within your means. This is a common-sense suggestion, but it’s worth your gas-guzzling SUV’s weight in gold when you direct this idea towards your investment choices. Look into the expense ratio of the investments you choose and do research to see if those with lower fees and expenses might work better for you. While you’re at it, call around to compare prices on your car insurance, because you’re probably paying too much (this has nothing to do with investing, it’s just good advice).
  3. Maximize your Roth IRA or your Roth 401(k) to save on taxes later, because odds are they’ll rise.
  4. “Don’t spend it all in one place” – said everyone’s grandfather after handing over a quarter. But, use that sage advice when you’re planning your investments and it translates to diversifying your portfolio. Too many people believe they’ve diversified their portfolios when, in fact, every dime is subject to market fluctuations. Consider putting the money you need to pay your bills where it can grow modestly, in relative safety, like in certain types of annuities.
  5. Have a written financial plan with savings goals that prepares for both expected and unexpected expenses. Having extra money in reserve if health problems arise, or the roof collapses, or the kids decide to move back in is vital to making it.

Breaking It

  1. Retirement “derailers” are among the biggest threats to maintaining economic security, according to The Ameriprise Retirement Derailers survey of Americans aged 50 to 70 with $100,000 or more in investable retirement assets. Not only can they happen to anyone, the survey showed that they happen to nearly everyone. Ninety percent of those surveyed reported experiencing at least one “derailer event,” according to Suzanna de Baca of Ameriprise Financial. In fact, on average, they experienced four.
  2. Events like job loss, divorce, a low-interest rate environment, or adult children moving back home all impact retirement savings. But just because these events are unwelcome surprises doesn’t mean you can’t plan ahead – build a buffer into your retirement portfolio to cover at least one setback.
  3. The most common derailers reported in the survey were: Providing financial assistance to grown children or grandchildren; home equities shrinking with the housing market; not saving early enough (really, who has great judgment at age 25?); low interest rates; and poor investment choices. Of these five, we think the last one is completely avoidable.
  4. The average amount lost to “derailers” among survey respondents was $117,000.
  5. One-third of respondents regretted spending money on unnecessary expenditures, like eating out and vacationing; and a quarter said they should have been more careful with credit cards.

In short, if you start saving at the tender age of 25, you can make it to a million. But then life will happen, to the tune of $117,000 on average, lost to an ex-spouse, unemployed progeny, or a flat market. So while you’re planning your retirement, give yourself some padding to expect the unexpected. Then, if you break it before making it, you have a chance to make it back.

–        The Savvy Investor