Here’s How to Get Your Retirement Savings Back On Track

Many people come to us in their 50s looking for financial advice and a strategy to get their retirement savings on track. Some just want to make sure they’re doing all they can over the last decade of their working lives to maintain the lifestyle they’ve worked so hard to achieve  ̶  to put the cherry on top of their retirement cake.

Others come to us knowing that they’ve missed the retirement train. Whether due to bad planning, bad spending habits, poor investment choices, or just plain bad luck, they find themselves falling further behind. With no idea how much retirement income they’ll need or how they can get it, they feel there’s no light at the end of the tunnel.

Whichever camp you’re in, it’s always better late than never – so let’s roll up our sleeves and get going!

Key Findings

• America is seeing record numbers of people retiring without adequate financial resources
• More than half of Americans (55 percent) age 49-59 are worried that they cannot achieve financial security in retirement
• Saving for retirement is more difficult given inflation and other obstacles
• Many people are unaware of how much they need to save to produce a desired level of retirement income
• If you are behind in your retirement savings, there are 10 things you can do to make up your shortfall

If you’re concerned with maintaining your lifestyle in retirement, you’re not alone. The 2023 Retirement Income Institute and the Alliance for Lifetime Income study found that when asked if their retirement savings are on track, most respondents said “No”.

Here’s a breakdown by age profile.

It’s easy to let money worries hammer you down, but they don’t have to. Instead, use them as fuel to push you forward. As Spanish author Miguel de Cervantes put it in his classic novel, Don Quixote: “Forewarned, forearmed; to be prepared is half the victory.”

We welcome taking on the challenge of helping people do just that: be prepared.  Over the years, we’ve found tried-and-true strategies to help both those whose retirement trains are coasting smoothly to their destination and those whose train has run off the rails to fast-track their preparedness.

1. Calculate Your Current Savings and Assets & See Where You Stand Financially.

Your net worth is the simplest indicator of your overall financial well-being, and it’s easy to calculate. Just add up all of your assets (such as investment accounts, retirement funds, and properties), then subtract all liabilities (including mortgages, credit card debt, and other loans).

Your net worth is very important in helping you determine how much debt you have and how it can affect your future wealth. It also helps you to highlight critical areas in your financial life that you should focus on as soon as possible.

2. Estimate Your Retirement Income Needs.

Determine your desired retirement age and your target savings goal.  Make sure you factor inflation into your calculations, and build in costs that are likely to increase as you age.

3. Plan for Healthcare Costs.

4. Review Your Liabilities and Pay off Debt.

This is one of the simplest ways to raise your net worth. Review all your liabilities and try to reduce or eliminate them. These may include student loans, credit card debt, car loans, and mortgages, among many other types of loans.

Focus on paying off the debts with the highest interest rates first, and pay off the other low-rate debts along the way. A lower debt burden means a higher net worth, and vice versa.

5. Increase Retirement Fund Contributions.

If you find that your retirement income needs to grow:

• Maximize contributions to retirement accounts like your 401(k), IRA, or Roth IRA.

Take advantage of catch-up contributions for those over 50. For 2024, you can contribute an additional $7,500 to a 401(k) and an additional $1,000 to an IRA.

6. Reduce Expenses.

Reducing your expenses is easier said than done, but it’s a great way to help boost your net worth. It stands to reason that your income needs are proportional to your expenses, and if you can cut back on expenses from today through retirement, you’ll need less retirement income. How can you make this happen?

• Regularly review your budget to identify areas where you can cut back.
• Pay off high-interest debt first, to free up more money for savings.
• Consider downsizing your home or moving to a lower-cost area.

A great way of spending less is to avoid the use of credit cards in favor of cash. A large bulk of uncontrolled debt comes from the use of credit cards.

7. Consider Other Income Sources.

8. Take Deductions On Your Tax Return.

Taking deductions on your tax return reduces your taxable income, which in turn can lower the amount of tax you owe. Here’s how it works:

There are two types of Deductions: Standard Deductions and Itemized Deductions.

Standard Deductions:

• A fixed dollar amount that reduces the income on which you are taxed.
• The amount varies based on your filing status.
• For 2024, the standard deduction amounts are:

Single: $14,600 | Married Filing Jointly: $29,200 | Head of Household: $21,900

Instead of taking the standard deduction, you can choose to itemize your deductions if they exceed the standard deduction amount.

Itemized Deductions:

Common itemized deductions include:

• Mortgage interest
• State and local taxes (SALT), up to $10,000
• Medical expenses exceeding 7.5% of your adjusted gross income (AGI)
• Charitable contributions
• Unreimbursed business expenses (subject to limits)

9. Know How Deductions Reduce Taxable Income.

Calculate Gross Income: Add up all your sources of income, including wages, dividends, interest, rental income, etc.

Subtract Deductions: From your AGI, subtract either the standard deduction or your itemized deductions (whichever is greater).

Here’s an example…

• Let’s assume you are a single filer with a total income of $80,000.
• You contributed $5,000 to a traditional IRA, reducing your adjusted gross income to $75,000.
• Choosing the standard deduction subtracts $14,600 from your AGI, leaving you with a taxable income of $60,400.
• But, when you add up your mortgage interest, student loan interest, state and local taxes, and some medical expenses, you get a figure of $18,000 – more than the standard deduction.

Since your taxable income is the amount on which your tax liability is calculated, by itemizing deductions, you’re taxed on $3,400 less income.

The U.S. tax system is progressive, so different portions of your income are taxed at different rates, called tax brackets. Reducing your taxable income can potentially change which bracket you fall into, reducing your marginal tax rate and overall tax liability.

Continuing with our example…

As a single filer, you are looking at three 2024 tax brackets: 10% on the first $11,600; 12% on $11,001-$47,150; and 22% on $47,151-$100,525.

If you take the standard deduction and have a taxable income of $60,400:

$1,160 (10% of $11,600)

+ $5,658 (12% of $47,150)

+ $363 (22% of $1,650)

Total: $7,181

But, if you itemize your deductions and have a taxable income of $57,000:

$1,160 (10% of $11,600)

+ $5,448 (12% of $45,400)

Total: $6,608

So, in our example, by itemizing your deductions you’ve saved $573 in taxes!

10. Reevaluate Your Investment Strategy.

11. Delay Retirement.

Working longer can significantly boost your retirement savings.

If you cannot continue in your current job, you may want to consider doing something that brings in income and brings you joy.  Also, delaying Social Security benefits will increase the monthly amount you receive.

And, last but certainly not least…

12. Seek Professional Advice.

Along with attending retirement planning workshops or seminars, consult a Certified Financial Planner™ (CFP®) or retirement specialist. A financial professional will help you develop a financial plan that puts an end to uncertainty by clarifying where you are today, and the cost of tomorrow’s dreams and goals. You’ll also know how to get there.

At WestStar, our financial advisors help clients to design a comprehensive plan for their retirement by accurately estimating their needed income and planning the steps to secure it.  We also help retirees spend down their nest egg at the right rate in post-retirement years so it doesn’t run out.

Get in touch with WestStar today and let’s chat about how we can help you get your retirement savings on track.

Sam Gullette & Erik Alexander