Most Americans are finding their current savings is not going to last for a lengthy retirement. Though it’s never too late to start, the sooner you begin saving, the more time your money has to grow. To address these shortcomings, it is necessary to understand all of your potential areas for funding your retirement, including personal savings, employer benefits (401k, etc.), IRAs, Social Security and annuities.
After reviewing all of these available avenues, the question becomes how to free up cash to add to your savings and how to ensure you are meeting short-term goals which support your long-term savings plan. Now more than ever, consumers have modern tools – right at their fingertips – to help them plan, track and maintain a healthy retirement savings.
Much of the discussion about retirement benefits centers on getting employees more involved in their defined contribution plans. Some technology improvements are making that more possible and likely, while another innovation aims to enhance user-friendly technology to track 401k plans for even the most passive participants. It is increasingly common to have interactive online tools such as personal finance apps, calculators and investment trackers which are designed to encourage employees to invest and save more than the default minimum in their 401k plan.
Experts in the retirement planning industry expect the next five years to feature significant improvements in participant engagement as advanced technology provides greater targeting of individual goals and improved communication paths to educate employees. Brokerage apps that track 401k accounts are helping employers offer lower-cost investments — which translate to richer retirement nest eggs.
5 Elements of a Good Retirement Plan
The purpose of a retirement plan is to help you understand how much money you will need to save and invest in-order to live the lifestyle you want during retirement. To accomplish this, your retirement plan needs to include a few key data elements:
- Demographic Information – Account for your current age, expected retirement age and life expectancy of both you (and your spouse or dependents). This information helps determine how long you have until retirement and how long you expect to be retired.
- Current Assets and Expected Income – Account for your current assets, salary and estimated future income (i.e. rental income from real estate, investments, etc.) to determine how much money you will be able to save or invest before retirement and how much you expect to have continually coming into your account afterwards.
- Spending Habits and Expenses – Most people’s expenses decrease after they retire, however it’s important to have a good estimate for how much money you will need for groceries, utilities, mortgage/rent, travel, healthcare and more during retirement.
- Social Security Income – Retirement plans need to account for any Social Security income you will claim. Leading up to retirement, many will not be able to save enough to retire on. In this case, Social Security may end up being the main source of income during retirement.
However, how much Social Security you receive is relative to the amount you have paid as an employee and when you decide to withdraw.
- Tax and Inflation Estimations – In addition to all of your income and investments, a good retirement plan should have some estimate of tax penalties. While you might assume your taxes will drop, there are penalties for withdrawing money from IRAs, 401k, stocks, and more. Many retirees are surprised by the thousands of dollar levied on their accounts or the rising prices of goods; try to plan ahead of time.
Apps to Help You Build a Solid Retirement
Retirement planning apps allow you to customize your retirement plans and/or manage the plans you and your financial advisor put in place. You can change the tax values to accommodate your personal projections, add — and then change — information about anticipated pensions, Social Security, and investment returns. This software can juggle a lot of specific details and use them to provide a report that is targeted to address your specific situation. If you decide to make some changes in the way you’re saving, some of these apps can show you the potential ramifications so you can make a decision without risk.
Retirement Calculators
Can running a calculator really make you better prepared for retirement? Even with the most simple retirement calculators, individuals who run the numbers enter retirement with considerably more in savings — and not simply because they are naturally big savers. Running a simple calculation once a year keeps people better on track than creating an elaborate plan they never update or look at again. There are many of these calculators online and easily accessed via mobile devices.
These calculators are going to inherently “inaccurate”, in the way they cannot provide you with exact numbers for savings or income. They are actually attempting to model the future using sophisticated algorithms to provide very close estimations you can take to your financial advisor to work out the specifics.
AARP Retirement Planning Tools
Similar to online calculators, these simple tools give you a quick read on whether your savings and retirement benefits are likely to be sufficient to last through your retirement after Social Security and any other pensions are taken into account. If the result says you could run out of money, you can enter a later retirement age or cheaper retirement lifestyle to see how those changes could affect your financial security.
While this tool doesn’t require you to come up with a lot of your own assumptions (it will even plug in your projected Social Security benefit for you), it does allow you to view and change its default assumptions, including the rate of return on your savings, your tax rate and your life expectancy.
Brokerage Apps and More…
Many brokerages such as Fidelity, Vanguard and other firms offer their own retirement planning apps which can help you compare between investment vehicles such as the 401 k and the Traditional IRA or Roth IRA. You can track how your employer contributes to your retirement account and how it affects your overall retirement savings. Users can also track how much money they are saving as a result of spending reductions and whether your overall retirement path is on track for a surplus or shortfall.
In addition, you can track mutual fund stocks. Read firm communications and recommendations, as well as change your investment choices to give yourself the best chance at making the most amount of money.
Putting Retirement Planning Apps to the Test
We could not recommend relying on any of these tools or apps alone, and then resting on your laurels. Consult them, quarterly or annually, to optimize your short-term financial decision making, while understanding that the future will inevitably turn out different than planned.
Additionally, you will need to speak with your trusted financial advisor and perhaps your employee benefits manager to make detailed plans given your specific situation and investment choices. Take a short and long-term approach to your retirement plans, then use these apps to track your progress