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Americans Need the Most Help With This Piece of the Retirement Planning Puzzle

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The final piece of a puzzle.

More than any other aspect of retirement planning, workers need help calculating how much to save for their golden years. That’s according to a new 401(k) survey commissioned by Charles Schwab, which also revealed $1.8 million to be America’s new magic number for retirement. However, calculating a savings goal isn’t the only part of retirement planning that workers need help with.

Whether you need assistance saving for retirement or managing your finances as a retiree, a financial advisor can be helpful. Speak with an advisor today.

Areas Where Retirement Savers Need Help

As part of Schwab’s 2023 401(k) Participant Survey, the company polled 1,000 401(k) plan participants between ages 21 and 70 who currently contribute to a company 401(k) plan. The survey touched on a variety of topics, including expected sources of retirement income, savings goals and whether workers feel comfortable receiving financial advice from artificial intelligence tools. When asked about retirement planning, here are the 10 areas where workers need help:

1. “Calculating How Much Money I Need to Save for Retirement”

Just over 40% of respondents said they would like help calculating their retirement savings target, making it the most common challenge facing participants who are saving for retirement. While respondents on average said they’ll need $1.8 million in order to retire, retirement savings sufficiency varies according to many personal factors. Income, lifestyle, longevity and more all play roles.

It’s not always obvious how to calculate a number that’s both accurate and suited to your personal circumstances. One solution is to use SmartAsset’s retirement calculator. With a few clicks, the tool will tell you how much you’ll need to have on hand when you retire and how much to save each month starting now.

2. “Receiving Specific Advice on How to Invest My 401(k)”

In addition to calculating an appropriate savings target, workers also need help picking investments in their 401(k)s. Four in 10 respondents listed “receiving specific advice on how to invest my 401(k)” as an area of need, making it the second biggest challenge facing retirement savers. That’s understandable since many employees must rely on their own judgment when deciding how to invest 401(k) funds.

Getting advice on your 401(k) from a financial advisor can potentially make a difference. An experienced financial advisor can help a saver consider risk tolerance, investment strategy, asset allocation, tax benefits, management fees and more when making investing decisions.

3. “Determining at What Age I Can Afford to Retire”

Another 38% of those surveyed said they need help picking the right age to retire. After all, your retirement age affects how much your Social Security benefits will be, whether you’ll have access to Medicare and more.

Although 65 is considered the typical retirement age, people stop working at many different times in their lives. You can determine the best age for you to retire by evaluating your anticipated retirement lifestyle, current savings, investment strategy, asset allocation and your life expectancy.

4. “Figuring Out How to Create an Income Stream in Retirement”

The run-up to retirement focuses on accumulating assets. Afterward, it’s about turning those assets into income, an area that 36% of participants said they need help with. Retirees may have multiple income streams including Social Security, retirement plan withdrawals, pensions, dividends, annuities and part-time employment.

To build your income plan, start with SmartAsset’s Social Security calculator, which will tell you how much you can expect to receive in retirement benefits. Next, evaluate your other anticipated income from all sources. As a benchmark, take a look at the average retiree’s income. If your total retirement income won’t cover your projected expenses, you may want to consider delaying Social Security or working part-time in retirement.

5. “Figuring Out What My Expenses Will Be in Retirement”

A married couple looks over their finances as they plan for their eventual retirement.

Spending habits change in retirement. You’ll no longer be spending on your daily commute to work and you won’t be saving in a 401(k) or other account. Healthcare and other age-related expenses, meanwhile, often go up. So, it’s no surprise that 34% of survey participants said they need help estimating their retirement expenses.

Making a retirement budget is the first step to clearing up the mystery. You can estimate expenses in retirement by projecting outlays for housing, food, transportation and other ordinary costs. But don’t forget to account for your discretionary spending, like travel and fun.

6. “Anticipating Tax Expenses in Retirement”

Taxes often go down in retirement, but don’t expect them to disappear – a fact recognized by 33% of those polled. To complicate matters, retirees have special concerns that younger workers don’t share, including potential taxes on RMDs and Social Security benefits.

Get a handle on retirement taxes by learning about how your Social Security benefits, retirement account withdrawals and investment earnings may be taxed. Some states don’t tax certain income sources, while others levy varying amounts of state income taxes on retirees. You may also get special treatment on property taxes when you’re retired.

7. “Figuring Out How New Legislation Affects My Retirement Plan”

Laws governing retirement savings are subject to change. Because of this, a financial move that looked smart last year may no longer make sense this year if a new law has taken effect. In fact, 30% of survey participants said they need help making sense of new laws and how they impact their retirement plans.

For example, the SECURE 2.0 Act of 2022 made a number of significant changes to the American retirement system. Most notably, the law changed the RMD age to 73 for people who turn 72 after Jan. 1, 2023. The age will eventually rise to 75. The landmark legislation will also allow people ages 60 to 63 to save an extra $10,000 in their 401(k)s – or 150% of the standard catch-up contribution, whichever is greater – beginning in 2025.

8. “Managing My Current Expenses So I Can Save More Money for Retirement”

In order to reach your personal savings goal, you’ll need to control your expenses so you have enough money left over to save each month. In fact, 25% of survey respondents said they need help managing their current expenses while accounting for retirement.

There are many approaches to free up money for savings. The envelope saving method calls for stuffing cash into paper envelopes labeled with spending categories. The 50/30/20 budget, meanwhile, splits your money into three categories associated with needs, wants and debt/savings.

9. “Figuring Out How to Catch Up on My Retirement Savings Goal”

The Federal Reserve reports that 60% of Americans either think their savings are not on track or aren’t sure. That contrasts with Schwab’s finding that just 25% of those surveyed want help catching up on their savings goal.

About one in four Americans have no retirement savings at all, according to the Fed. The median retirement savings was $65,000 in 2019, the latest year data was collected. Catch-up contributions can help close the gap if you suspect you are behind. In 2023, the IRS allows people ages 50 and up to save an extra $7,500 in their 401(k)s or similar workplace accounts, as well as an extra $1,000 in their IRAs.  

10. “Managing Debt”

A comfortable retirement is more achievable if you pay off your debts before you stop working. However, only 20% of those surveyed said that it’s something they need help with.

When you’re trying to save for retirement, paying off debt may seem like a secondary concern. However, it can make more sense to pay down debts than to invest. Deciding whether to eliminate debt or build a nest egg for retirement requires assessing concerns ranging from the psychological benefit of paying off a loan to the power of compound interest over time.

Bottom Line

Every retirement saver is in a unique situation, which is reflected by the wide range of issues workers say they need help with. From calculating an accurate savings goal and picking when to retire, to keeping up with law changes and paying down debt, savers express a desire for assistance with a range of aspects of the retirement planning challenge.

Retirement Planning Tips

  • A financial advisor can help with your retirement questions, planning and more. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • SmartAsset’s retirement calculator is a free, quick and easy place to get an answer to the overriding question of how much you need to save for retirement. Meanwhile, SmartAsset’s Social Security calculator can help you determine when the best time might be for you to start collecting your benefits.
  • Get retirement planning and investing tips Tuesdays through Fridays with the SmartMoney Minute newsletter. It’s 100% free and you can unsubscribe at any time. Sign up today.

Photo credit: ©iStock.com/Tinnakorn Jorruang, ©iStock.com/nortonrsx

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