The Top Retirement Strategies

Saving for retirement is either your ultimate goal or it will one day soon become your ultimate goal, depending on your age. But while retirement savings is the ultimate financial goal for most, people’s actions do not always equate to achieving that goal.

Senior man with dog in white suit sitting at the beach

According to the Center for Retirement Research at Boston College, approximately half of those individuals who retire at the age of 65 will be unable to maintain their preretirement lifestyle. That is a staggering number, especially when you consider that social security is best utilized when you reach your full retirement age (FRA).

Your FRA is dependent on the year you were born. If you were born in 1937 or earlier, from 1943 to 1954, or in 1960 or later, determining your FRA is simple. If you are in the first group, your FRA is 65. If you are in the second group, your FRA is 66. And if you are in the third group, your FRA is 67.

For other yearly spans, the FRA is slightly modified. If you were born from 1938 to 1942, your FRA is 65 and some months. And if you were born from 1955 to 1959, your FRA is 66 and some months.

If you claim your social security benefits at FRA, you will receive your standard Social Security benefit amount. If you claim prior to FRA, you will be subject to early-filing penalties that reduce your benefit. To truly maximize your social security payments, you should build up retirement credits by not claiming social security until the age of 70.

Here are five ways you can better strategize your retirement and maximize your savings.

Save 20% a Year

In the old days, if you put 10% of your earnings away, you were going to be in line for a stable retirement. These days, that number has increased to roughly 15%. However, if possible, we recommend putting away 20% of your household earnings towards retirement.

There is an assortment of reasons why 20% saved towards retirement should be your ultimate goal. Those reasons include inflation, the demise of the pension, potentially lower future investment returns, and as medical advances continue to advance – longer life expectancies.

By saving 20% of your earnings, you are putting yourself in the driver’s seat towards a healthy retirement. Unless you are starting to save for retirement at the age of 25 or less, saving 10% of your salary will no longer be adequate.

Start Saving as Early as Possible

Most Americans want to retire by age 67. According to the Bureau of Labor Statistics (BLS), the median wage for workers in the United States in the fourth quarter of 2020 was $984 per week or $51,168 per year (assuming 52 weeks of work per year).

Based on the median salary of American workers, then to save 20% of their salary means they need to put away $10,233.60 annually – or $852 per month.

If a worker starts saving $852 every month beginning at age 40, and assuming an average compound interest rate of 5%, then in 27 years, the worker will amass $562,118.05.

However, if that worker started at age 35, that number increases dramatically to $773,914.96. In order to grow their retirement to over one million dollars, the worker will need to save for a total of 37 years which means they need to start saving 20% beginning at age 30.

Save More than 20%

This rule is quite simple to understand. 20% of your salary should be the minimum amount you save. But if even six months out of each year you can increase that number to 25%, you will accumulate a much larger amount which will make your life simpler in retirement.

If you start saving for retirement later than the age of 40, you will definitely need to put away more than 20% of your salary. A worker who reaches the age of 40 with no retirement savings should aim to sock away 25% of household income at a bare minimum.

If one month you can only put away 15% of your salary, aim to double that amount the next month. Sometimes the best way to achieve this is by simply cutting out unnecessary expenses.

Don’t Waste Money on Unnecessary Expenses

A common piece of investment advice is that if you give up your daily latte at Starbucks and if you saved that money alone, then over a 27-year period you would have saved $19,440 without factoring in interest growth.

While every bit helps, cutting out your daily latte is a small way to increase your savings, but your financial destiny is more likely determined by how much you spend on the average three biggest categories in the typical American’s budget. Those are housing, food and transportation.

Housing expenses alone can eat up a third of the average budget. Therefore, when you are in the market to buy or rent a new place, only seek out that which you can afford and only look for units which have as much space as you actually need. Seeking out places to buy or rent in cheaper areas can literally save you hundreds of dollars per month. Utility bills are also an easy way to cut down your monthly expenses. Always keep an eye on the thermostat and do your best to upgrade your house with energy-efficient windows and doors. Seal all the windows and doors to limit air leaks in and around your home. Install low-flow showerheads and turn off unnecessary water usage. Upgrade all of your light bulbs with Halogen bulbs, compact fluorescent lamps (CFLs) and light-emitting diode (LED) bulbs which all offer longer lasting light and are more energy-efficient than your old incandescent bulbs. 

Food expenses are an interesting item under unnecessary expenses. According to the Department of Agriculture, Americans waste 30% of the food they buy. Since the average household devotes 13% of its budget to food, that is almost 4% of annual earnings going in the trash.

According to Kelley Blue Book, the price of a new car is almost $40,000. Consumers are taking out bigger, longer-term loans to afford these new cars, and in many cases still owe money on a previous car when they replace it with a new one. Try to buy small to midsize fuel-efficient vehicles and keep them for 10 to 15 years. Getting a car to 200,000 miles saves $30,000 on average, according to Consumer Reports.

Cars which are fuel efficient can save you a boatload of money, while a gas-guzzler can be detrimental to your wallet.

Amish horses and buggy parked near a covered bridge in Lancaster County, Pennsylvania.

Maximize Your Retirement Accounts

Maximize your retirement accounts by contributing the maximum amounts allowed to your IRAs, 401ks, 403bs, TSPs, and/or other retirement accounts.

You can also gain special tax advantages with these types of accounts. Contributions might lower your taxable income, resulting in a lower tax bill in the year of the contribution. You also will not owe taxes on the interest, dividends, or capital gains generated by your investments in the account each year. However, withdrawals from these retirement accounts are still taxed as ordinary income.

Tax breaks like these can boost your retirement savings significantly, versus if you had just put these funds into savings accounts or even a brokerage account.