The average retirement saver targets these three financial goals: How do they compare? | Smart Change: Personal Finance
Retirement financing is a hot topic for Americans. In a recent survey, the Employee Benefits Research Institute (EBRI) asked workers 25 or older to set their highest priority long-term financial goals.
Not surprisingly, retirement-related goals top the list. Specifically, participants said they wanted to save and invest, plan for future health care needs, and strategize for retirement income.
The data comes from the 2022 Retirement Confidence Survey conducted by EBRI. The survey collected responses from 2,677 Americans age 25 and older, including 1,545 working adults and 1,132 retired people. While both workers and retirees have their most important financial goals in mind, the response metrics listed below are specific to working adults.
Can Your Retirement Plan Benefit From Saving And Investing, Health Care Planning, And Create Retirement Income? If yes, then keep reading to learn easy success steps for each of these goals.
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1. Saving and investing
Six out of 10 workers cited savings and investment as a top financial priority. If you share this goal, follow these steps to maximize your results in this area.
- Set a budget for your living expenses. Your budget allocates funds each month for savings and investing. Additionally, the expense documentation process often reveals areas where you can cut back on expenses. For example, you may discover subscriptions that you do not need. Or you may realize that you can live without spending $10 a week on fizzy sodas. Add those cuts and reallocate the money to your retirement plan.
- Automate your investments. Set up a 401(k) or IRA for automatic deposits. If this already exists, look to increase your contributions and/or improve your investment choices. Index funds with low fees and large heads are very popular, as are target date funds. From now on, plan to increase your contributions at least once a year.
- Don’t deviate from your plan. Sticking to your plan for the long term is the only reliable way to reach your big wealth goals. Don’t let turbulent markets or other short-term conditions distract you.
2. Planning for future healthcare needs
About a third of workers (36%) wanted to plan for future healthcare needs. A good plan here involves contributing (more) to a Health Savings Account or HSA.
If you have a high-deductible health plan, you can make 2022 HSA contributions of up to $3,650 as an individual or up to $7,300 if you have family health coverage. You can then invest that money and allow it to grow over time — with the goal of building a significant amount of money for health care costs in retirement.
Contributing to an HSA is a no-brainer if you qualify; The account allows you to use tax-free money to pay your medical bills. Your HSA contributions are pre-tax, investment earnings are tax-deferred, and medical expense withdrawals are tax-deductible.
Once you turn 65, you can also make taxable HSA withdrawals for any purpose without penalty. So if you don’t need the money for healthcare in retirement, you can simply use it for something else.
3. Develop a retirement income strategy
Three out of ten workers said they needed to build sources of income for retirement. You can tackle this goal in many different ways, such as:
- Dividend. Invest in stocks or dividend funds over time. Reinvest your dividend income while you work to increase your earning potential faster. You can switch to cash dividends once you retire.
- fixed income funds. Fixed income funds invest in debt securities. Payments on a principal debt fund is the income paid to you as a shareholder. Go for low-risk funds so you don’t sacrifice reliability for higher returns.
- annuities. An annuity is a source of income that you can buy. You pay an amount up front – all at once or in installments – and get a guaranteed series of cash payments in return. Know that annuities can be complex and expensive. Research your options carefully.
- Commercial income. A small business that can operate without you is another option. You can create an e-commerce store or blog that you can later turn into an employee, for example.
Most important retirement goals
The first three financial goals among American workers are interesting as a point of reference — but they also create a good framework for a multifaceted retirement plan. Saving and investing over time provides a basic level of financial security. You can upgrade your outlook from there by planning for future healthcare costs and developing an additional income stream (or two).
The financial work you do in these areas today creates the basis for a comfortable, low-stress retirement tomorrow.
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