Judge Your Retirement Savings: Which of the Four Realities Matches You?

by Kevin on November 20, 2013

In regards to investing and retirement the slow grind of time works for or against us depending on two factors:

  1. how much time we have left until retirement
  2. how well we have prepared relative to that time

This leaves us four quadrants of possible outcomes based on these two variables:

  1. we have time (younger) and haven’t done a good job preparing (little retirement savings)
  2. we have time (younger) and have done a job preparing (have retirement savings)
  3. we do not have time (older) and haven’t done a good job preparing (little retirement savings)
  4. we do not have time (older) and have done a good job preparing (have retirement savings)

We want to be in the “have retirement savings” side of the equation regardless of our age. If you are younger and have a lot of time until retirement, saving now makes your life in the future a lot easier. Likewise if you are nearing retirement age and you’ve done a good job setting funds aside for your golden years, that’s great as well.

Of course if you haven’t prepared well you need to get moving. The clock is always rolling and that retirement date isn’t likely to move much unless you just want to keep working forever.

How to React to Your Retirement Savings Reality

Whether young or old, far from retirement or about to hang it up from working, here are your two potential realities.

You’ve Prepared Well: Stay the Course

This is where you want to be. This is a land of milk and honey, of relaxing and not stressing, of full budgets and no scrambling.

If you’re nearing that magic date where you stop working — congratulations are in due order. Diligently setting aside money every year for retirement is not an easy task. Watching as friends and strangers blow through their cash each month on nicer cars, homes, and vacations can stress your will to continue on. But you’ve done it. Just don’t blow it now:

  • Maintain proper asset allocation for your age. No need to watch half of your portfolio disappear during a stock market crash.
  • Continue to contribute per your financial plan. Don’t take your foot off the gas just yet.
If you have many decades in front of you before retirement, keep up the good work. You’ve gotten off on the right foot but you still have many years left to mess things up. Pat yourself on the back, but not too hard:
  • Continue to contribute and increase contributions where you can. This will only bring your retirement date closer to you.
  • Maintain proper asset allocation. If you are young you will need a relatively risky portfolio to provide you the growth needed to get to retirement on time.
  • Ignore those around you that are living a lifestyle that is strategically unwise. They may enjoy riches now, but the future is dim.

You’re Behind: Step Your Game Up

Being behind is no fun, but it pales in comparison to never being able to catch up. It’s going to take work to get on the correct side of the equation.

If you are older prepare for a bumpy ride into retirement. You still have a shot to correct the course of the ship, but it won’t be easy.

  • Cut back now. Without a sufficient nest egg you’ll be cutting back in retirement either way. Better to cut back now and give yourself a shot at a decent retirement.
  • Maximize your retirement savings with “catch up” contributions allowed on 401ks and IRAs. You could save an extra $6,500 total between the two for a maximum of $29,500 in retirement savings per person per year.
  • Consider working longer. This gives you time to save more into your accounts, lets your current portfolio continue to grow, and nets you a larger Social Security payout.

If you are far from retirement, this is your wake up call. For every day that goes by without you taking corrective action, the task at hand gets more difficult. At your age you thankfully have enough time to make things right.

  • Start saving or increase your savings amount for retirement. Try to maximize all of the accounts available to you.
  • Consider investing more aggressively. Added risk nets additional return, but you will need to be mentally prepared for some ups and downs with the market.
  • Don’t panic if the market goes down. Consider it an opportunity to buy stocks at a lower price than you could the day before.
  • Be consistent. You can’t correct your course for a few years then return to your prior ways. This is a long journey.

Where are you on your retirement journey? Which quadrant do you fall into?

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