It’s in your 30s and 40s that you’re starting to make good money. As such it’s these years which are vital to saving enough money to retire with peace of mind.
Yet, according to a report from the Economic Policy Institute¹, the average retirement savings of families between 44 and 49 is $81,347. Using the rule of thumb that one can withdrawal 4% of their savings each year without running out of money — that’s only $3,254 of annual income one can expect from their savings.
With only a bit more than a decade to go to what most consider the ideal retirement age — there’s clearly a gap that needs to be made up.
What can you do to make up that gap? Here’s four strategic and smart retirement moves to make in your 30s and 40s.
# 1 – Get Rid of High Interest Debt
If you’ve read one personal finance book, you’re probably familiar with the power of compound interest. This is when the author explains you can save say $443 a month and in 30 years you’ll be a millionaire (with a 10% return).
An example like this is so widely used because it’s absolutely true. Compound interest is that powerful. But keep in mind, it works both ways.
Compounding debt is just as powerful. In some cases, even more powerful as interest rates on credit cards are typically over 15%. That’s why the smartest retirement move you can make in your 30s and 40s is avoiding such debt!
# 2 – Maximize Your Retirement Contributions
Without high-interest debt you can use the power of compound interest to work for you. That means seeking investments that provide you the highest, after-tax return for the risk you’re willing to take.
For most people, this means taking advantage of tax advantaged accounts like 401(k)s and IRAs. And of course, take full advantage of your employer-match.
One report² found 1 in 4 employees do not take full advantage of their employer match. Incredibly, by not maximizing matching contributions, these employees are leaving an estimated $24 billion on the table!
# 3 – Diversify Your Retirement Income
The “three-legged stool” is a phrase financial planners use to describe the three most common sources of retirement income:
- Personal Savings – 401(k)s, IRAs, taxable accounts, real estate, etc…
- Social Security – The monthly benefit one can expect from social security
- Pension – The monthly income received from an employer’s pension plan
It should come as no surprise, that this model is hard to achieve. It’s rare today an employer offers a pension. That’s unfortunate too because pensions were a good thing. Who wouldn’t want a paycheck for the rest of their lives?
But for many reasons, most employers stopped offering pensions. In most cases, replacing them with a 401(k) plan.
The trickle down effect of this is that the # 1 fear most Americans have nearing or in retirement is running out of money.
It’s not hard to see why either. With The Great Recession of 2008 on their minds, these people know what it’s like to see their personal savings crater.
When it comes to retirement savings, few people know the issues of American people better than Matt Carey. While working for the U.S. Treasury, Matt saw first-hand how removing pensions as a source of income created a situation many Americans may soon face: running out of money.
This lead Matt to found Blueprint Income — a company that allows individuals to create their own Personal Pension Plan, regardless of their employment situation.
How a Personal Pension Plan works
Regardless of your age, you can invest small monthly contributions into your Blueprint Income Personal Pension Plan. Each monthly contribution turns into guaranteed income once you retire that continues for as long as you’re alive.
Let’s use myself as an example.
At 33 years old, say I wanted to diversify my retirement income with a $500 a month contribution ($6,000 per year) to a Personal Pension Plan.
Using Blueprint Income’s Personal Plan estimator tool, here’s what I can expect in terms of annual guaranteed income.
If you’re familiar with the concept of an annuity — that’s similar to what Blueprint Income is offering with their Personal Pension Plan. But there’s a big difference, there’s only an upfront payment of $5,000 to get started. Then, you can make variable contributions afterwards.
In comparison, a typical annuity is bought using a large upfront payment. As such, annuities are unaffordable for most Americans.
More so, anytime you’re dealing with financial products, you want to make sure you’re talking to a fiduciary. Fiduciaries have a legal and ethical responsibility to act in your best interest.
Blueprint Income is a fiduciary. Meaning if a Personal Pension Plan isn’t right for you — Blueprint Income has a legal obligation not to recommend their product offerings. (They’re actually not required to act as a fiduciary if you’re not using your existing retirement savings to fund the Personal Pension, but they choose to do so anyway.)
On Blueprint Income’s homepage they have a free tool which allows you to see the guaranteed retirement paycheck they can provide, with the amount you’re wanting to save. Take a minute to play around with some estimates. Then, think about how this diversification would impact your retirement.
# 4 – Increase The Gap Between Your Income and Expenses
Once you have your savings strategies set, e.g. 401K, IRA, Personal Pension Plan, your next move is to maximize those accounts. Specifically, you want to save as much as you can.
You can do that in two ways:
- Increasing your income
- Decreasing your expenses
To paraphrase Benjamin Franklin, “The best is to do both at the same time.”
Start planning ahead for a secure retirement today. Head over to Blueprint Income to see what size guaranteed retirement paycheck they can provide you. How would such a paycheck impact your retirement?