Unfortunately, “retirement planners” don’t exist. What do exist, however, are certified financial planners™, who can help you with your retirement planning.
And they’re happy to share their wisdom. In fact, we picked the brains of two experienced CFPs® to find out some of the most common mistakes their clients make—so you don’t have to.
1. Operating Without a Goal
Estimating how much money you need to save can be tricky … but that doesn’t mean you should go in blind. After all, that’s a real recipe for disaster. Katie Brewer, CFP® with LearnVest Planning Services, says that she sees many people saving for retirement without any particular goal in mind, which can keep them behind schedule and coming up way short when it’s time to quit your day job.
To estimate how much money you’ll need after you stop working, Brewer points to a figure called the “replacement ratio“—that is, how much of your income you need to “replace” for each year you’re retired. “For a financially secure retirement, meaning you’re neither on a tight budget nor are you splurging on cruises and five-star restaurants, we recommend planning to replace 70% of your former income—though that figure can vary based on your overall financial picture,” Brewer explains.
If you’re the type who’s going to drastically reduce your living expenses and keep yourself on a tight rein once you retire, you could probably make do with about 60%, again depending on your individual circumstances, she says. And if you want to live just as you’re living—plus some amazing round-the-world trips, you should estimate saving enough to replace about 80% to 100% of your former income.
From there, work backward: How much do you need to save now to get there? Many brokerages offering retirement plans have calculators right on their websites, says Brewer, or you can use free calculators through sites such as FINRA and Bankrate, which allow you to plug in facts like how long you have until retirement and show how much your savings could grow in that time. While those calculators can help you with a rough estimate, you may want to work with a financial planner to make sure you’re on track.
OK, we get it: It’s nice outside. You’ve got years to go. Nobody but the fictive retirement planners really wants to think about retirement at all. But when it comes to saving for it, there’s no bigger advantage than starting early.
Brewer works with a lot of people who put off saving for the future like any other chore: “I’ll do it after I get a promotion,” “after I’m earning more,” or “after I’ve made a bigger dent in my student loans,” they tell her. “But when you keep putting it off, it’s all too easy to get to retirement and find out you don’t have nearly enough saved,” she cautions.