Seven steps to deal with our primary money fear
The primary concern for many of us is running out of money in retirement. These are seven tips to prevent that from ever happening.
A woman uses an ATM outside of a closed bank five days before the upcoming referendum, in central Athens, on Tuesday, June 30, 2015.
Petros Karadjias/AP/File
The idea of running out of money in retirement keeps many people awake at night. In fact, it鈥檚 the No. 1 concern among clients of CPA financial planners, according to a 2015 study by the American Institute of Certified Public Accountants.
More than half (57%) of CPA clients said that outliving their savings was their biggest retirement concern. Another 22% said it was among their top three concerns. Other top concerns included the cost of health care and figuring out how much money to withdraw from retirement accounts and other assets.
But there are ways you can address that fear now, including ramping up your savings, cutting expenses and even getting some聽. Here are seven steps you can take to create a sustainable action plan.
1. Start saving now.
Suppose you鈥檙e in your early 30s and 诲辞苍鈥檛 yet have a retirement plan. The best time to plant a tree was 20 years ago, and the second-best time is today, according to the Chinese proverb.
Would it be better to have an extra 10 years of compound interest? Of course. Will agonizing over your tardy start do you any good? Nope. Talk to a聽聽to create achievable goals and then get going on them.
2. Save 15% of your earnings.
This might not be possible if you鈥檙e paying back student loans on a starter salary.聽聽that includes automated savings of even a small amount of each paycheck into a 401(k) or IRA.
鈥淪tart with 2% and live with that for three months,鈥� says Kimberly Foss, founder of Empyrion Wealth Management in Roseville, California. Increase your savings by two percentage points every quarter, if possible, until you reach the the聽.
3. Take advantage of any 401(k) match.
If your employer will kick in even a couple thousand bucks, save at least enough to qualify for the maximum amount of matching funds. You might want to start your own IRA elsewhere, but max out the 401(k) match first. It鈥檚 foolish to leave money on the table.
4. Anticipate your retirement lifestyle.
Picture your ideal retirement, whether that鈥檚 a golf-course-and-cruise-ship lifestyle or a chance to bang nails with Habitat for Humanity. Determining what you value most can help you 鈥渋dentify the bare-minimum aspects of retirement that are most important to you,鈥� says Emily Guy Birken, author of 鈥淭he 5 Years Before You Retire: Retirement Planning When You Need It Most.鈥� Then plan accordingly.
Travel hounds will need to save more than homebodies, for example. A child-free couple won鈥檛 need to plan to help grandkids through college. Those who already own their homes can focus on taxes and upkeep instead of mortgage payments.
5. Talk to a life insurance agent.
Think about what would happen to your spouse or partner if you died. Would your loved one be able to build sufficient retirement savings if he or she had to cover rent or mortgage and raise and educate the kids without your income?
鈥淭erm insurance is so cheap for young, healthy individuals,鈥� says聽聽of PPI West Insurance in Newport Beach, California. 聽聽may be much lower than you think.
[Life insurance quotes are available through NerdWallet鈥檚聽.]
6. Live intentionally.
When making a purchase, financial coach Todd Tresidder of Financial Mentor suggests considering these questions: 鈥淒oes this take me toward my goals?鈥� and 鈥淚s this getting me the best value for my money?鈥� That doesn鈥檛 mean you can never have fun again; it simply means that you鈥檙e spending with purpose.
鈥淐ontrol your spending so that your lifestyle lags behind your income,鈥� Tresidder says. The cash you聽诲辞苍鈥檛聽spend on frequent technology upgrades or Saturday shopping trips is money you can put into a retirement plan.
7. Don鈥檛 take Social Security too early.
The longer you live, the more likely it is that you鈥檒l use up your savings. Taking Social Security at age 62 鈥渋s a pretty good way to find yourself impoverished later,鈥� says personal finance author Liz Weston. Your check will increase by 7% to 8% for every year you wait.
The size of your check matters. According to the Social Security Administration, 53% of married retirees and 74% of singles get half or more of their income from Social Security. For 22% of married couples and 47% of singles, Social Security makes up 90% or more of their income.
The trust fund that helps pay for retirement and disability benefits is on track to run out by 2034. If no other changes are made, payroll taxes would only be sufficient to fund about 79% of scheduled benefits after that date. Social Security should still provide some monthly income, but it鈥檚 best not to depend on it to support you fully in your retirement.
Taking charge
The fear of outliving your money is understandable, but 诲辞苍鈥檛 let anxiety keep you from taking action. Starting to save, even a tiny amount, and looking for ways to steadily increase your nest egg can help you tackle your worries and get on the right financial track.
Donna Freedman is a contributing writer at NerdWallet, a personal finance website.