How to Upgrade Your Retirement by $500,000

The number one concern we hear from our clients is that they wish they would’ve started investing sooner.  But what if there was a realistic way to upgrade your retirement nest egg by a half-million dollars between now and retirement?  Most people would stop reading at this point, thinking that this is “too good to be true,” but trust me, it’s not.  Even if your kids just finished college and you’re finally starting to feel like you’ve got extra money in your pocket, you too can make this a reality.  It just takes some education, planning, and execution.  So, if you’re ready for step 1 (education), read on…


Step 1:  Education

First, let me help you feel better about where you are in life.  Most people feel like they haven’t done enough to save for themselves, and to quote so many clients we’ve met with over the years, they “don’t even look at it.”  To make matters worse, a recent study for 2019 found that roughly 22% of individuals have less than $5,000 saved for retirement with 15% having nothing at all… and as you can see below, it’s getting worse, year-over-year.


of-adults-w- How to Upgrade Your Retirement by $500,000


Now, these are pretty depressing statistics, but there’s hope for those who’ve done little-to-nothing to get their retirement plan moving in the right direction.  You first have to start looking at your financial situation, writing down what you spend and save, and then try to figure out which levers can be pulled to save more.  Start thinking in terms of “needs vs. wants” and make the decision that you’re going to make a change today.  That brings us to the next step in the process…


Step 2:  Planning

You can’t build a house without blueprints and you can’t successfully reach (or expect your money to last throughout) retirement without a written, living retirement plan.  If you’re trying to lose weight, it’s not dissimilar from planning out your meals before you start each day.  If you don’t plan, it’s not gonna’ happen and you’ll just go back to your old habits.  Money is the same in a lot of ways.


When we build a plan for one of our clients, we use a multitude of inputs before we can make a plan for the future.  The inputs might include any, all, or more of the following:


  • Current income
  • Future pension income (private pensions, STRS, PERS, SERS, Deferred Comp)
  • Future social security income
  • Future part-time income
  • Future “other” income (rental or business income)
  • Current savings
  • Current employer matching contributions
  • Current baseline expenses (property tax, insurance, utilities, phone, etc.)
  • Future baseline expenses
  • Current 401k balance
  • Current 403b balance
  • Current 457 balance
  • Current Roth IRA balance
  • Current single/joint and/or Trust account balances
  • Current annuity balances
  • Current custodial account and college savings account balances
  • Future one-time expenses (downsizing, vacation homes, weddings, cars, etc.)

This is just an abbreviated list of the 16-page list of questions we ask on our initial, 2-hour “Discovery Meeting” visit.


Bottom line, we need to find out where you’ve been and where you are.  Then, we want to know where you want to be (and when), and we can then fill in the gaps, providing answers and solutions to help you get there.


While a good “rule of thumb” is to save roughly 14-16% of your income (including your employer’s matching contributions), one shouldn’t use rules of thumb to determine if and when they can quit working.  Instead, we take all these inputs mentioned above, extrapolate the information out into the future, and determine how much YOU need to save in order to make it to retirement on time.


Then, once you’re retired (or if you’re already retired today), we use the same (or at least similar) information to determine how much you can conservatively spend in order to ensure you never run out of money in retirement.


So let’s just say that we’ve put a plan together for you.  Let’s also assume that your kids are out of college and you’ve got roughly 15 years left until you’d like the choice to quit working if you want to.  You have $250,000 saved in all your retirement account thus far, and we determine that you need $750,000 in order to retire on time.


As we finish the plan, we determine that you need to max out your retirement plan at work (and we’ll assume it does NOT have a match, just for the sake of this article), and then max out a Roth IRA with a catch-up contribution each year.


You’ve never tracked your spending, nor have you ever really known how much you need to save each month – or what accounts to use, for that matter.  But as a result of this planning process, now you do! Now you’re ready to move onto the last, and most crucial step…


Step 3:  Execution

A written, living, breathing plan without any execution is… worthless.


Once the plan is set, you absolutely have to follow it.  Again, just like fitness and food, if someone helps put together an exercise and diet regiment for you, but you don’t follow it, do you think you’ll be happy with the result?  Or maybe just more depressed than before, since you wasted time and money on a plan that you aren’t even using!


In our case study above, the individual in question would be 52 years of age with 15 years left until retirement.  They have $250,000 saved and they need to do two things:


  1. Increase their 401k contribution to the max, which is $19,000/year in 2019, and
  2. Start an ACH each month to max out their Roth IRA (plus catch-up) at $7,000/yr


Doing so results in a total annual savings (without employer match) of $26,000/year and in 15 years, at 6% per year, their $250,000 would grow to more than $840,000, which is more than the $750,000 that we needed in order to retire on time.


This also means that maybe this person could retire earlier than expected – or maybe they could spend more money than they’d originally expected.  Regardless, it’s all good news here – and all because the individual educated themselves, put together a plan, and executed the plan.


The same study referenced earlier in this article pointed out how little money people have saved.  As you can see below, even more interesting is the dollar amount people think they need in order to retire on time and never run out of money.  I’d argue that most of these individuals are wrong.  Never mind the fact that almost half admit they “don’t know” – the truth is, even for those who think they need more/less than $200,000, the vast majority of people have never put together a plan, so how in the world would they know how much money they need?!


Expected-Savings How to Upgrade Your Retirement by $500,000


So, with Independence Day this week, take some time to seriously consider your own financial independence.  Think about where you’ve been, where you are, and where you want to be.


When do you want to quit working?  How much are you spending?  Do you really know where your money goes – and could you do a better job of saving for yourself in these remaining years before you’d like the choice to quit working?


And remember, you don’t have to do this alone.  We’re here to educate you on an ongoing basis, to build and consistently update your plan, and most importantly, to hold your hand and help you execute all you’ve learned so that you can live a successful, stress-free retirement!


So enjoy your 4th of July holiday, and instead of “New Year’s Resolutions,” consider this your very own “Financial Independence Day” and start taking steps now, to better your tomorrow!


Till next time…


Categories: Adam Koos, CFP®, CMT®, Educational Articles, Market Commentary

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