You might be tired of hearing it, but you know it’s true: You need to start saving for retirement now. If you start saving for retirement today instead of delaying it for a few years, you could add thousands of dollars to your retirement savings.
But perhaps you’re already setting money aside for your golden years. The only problem is you don’t know if how much you’re saving is actually enough to last you throughout retirement. If that’s the case, here are nine red flags that indicate you need to ramp up your savings efforts.
1. You don’t know your savings rate.
If you don’t know how much of your income you’re saving for retirement, that’s a huge red flag. You should know your savings rate — which is typically calculated by dividing the amount in your savings by your annual income — and you should be trying to increase it every year. The lower your savings rate, the less money you’ll have to last you through your golden years and the less likely you’ll be able to afford all of the necessities — as well as the luxuries — you’ve grown accustomed to.
According to brokerage firm Fidelity Investments’ biennial Retirement Savings Assessment study, Americans’ median saving rate increased from 7.3 percent in 2013 to 8.5 percent in 2015. Still, experts recommend that your total savings rate should be at least 15 percent.
2. You’re spending too much of your income.
Again, the general rule of thumb is you should be saving at least 15 percent of your income for retirement. But if you’re having trouble saving more of your income, take a look at your spending habits and see if you need to cut back. You might find that you’re spending too much of your take-home pay on little things that can add up, such as going out to lunch three times a week.
Once you get your paycheck, make sure you put 15 percent — or perhaps even 10 percent if 15 percent is too much — into your retirement savings account. Then, divide the rest of your take-home pay between an emergency fund and other expenses you’re planning to incur in the future. The earlier you get used to setting 10 percent to 15 percent of your income aside, the easier it will be to do so.
3. Paying medical expenses is a struggle.
You might have a few medical bills now, but you’ll likely have more as you get older. So if you’re having a hard time finding the money to pay for your current medical bills, you’ll probably have an even harder time paying medical expenses when you enter retirement.
HealthView Services’ 2015 Retirement Health Care Cost Data Report found that a 65-year-old couple that retired in 2015 — and is covered by Medicare Parts B, D and a supplemental insurance policy — can expect to pay the average lifetime retirement health care premium cost of $266,589. But for a 55-year-old couple retiring in 2025, that cost jumps to $463,849.
So start saving money now; you don’t want to have to worry about not being able to pay hospital bills in the unfortunate event you get sick or injured during retirement.
4. You have credit card debt.
Whether you’re currently living off your credit cards or trying to get out of credit card debt, there’s a good chance you’re not focused on retirement. Examine your spending habits, and create a budget to start living within your means. Then, devise a plan to start paying off debt and saving for retirement.
In some cases, it might make sense to focus on saving money for retirement first. Or, the opposite might be true: pay off debt, and then start saving for retirement. If you’re unsure about where to start, consult a financial planner.
5. You have no idea how much money you’ll need to retire.
If you don’t know how much money you’ll need to maintain your current lifestyle in retirement, you’re most likely not saving enough. You might not know exactly how much you should save down to the last penny, but you should have a ballpark estimate. Not only do you need enough savings to pay for your living expenses, travel and everything else you’re planning to do during retirement, but you’ll also need to account for inflation.
6. You’re not contributing the max to your employer contribution plan.
If your company offers to match your 401k contributions, contribute the maximum. It’s a quick and easy way to grow your retirement fund and essentially earn free money. Take advantage of this program if your employer offers it. Otherwise, you’ll regret passing up this opportunity if you find yourself struggling to pay for an expense during retirement.
7. You plan on relying on Social Security.
Sure, Social Security can help you pay for expenses in retirement, but you shouldn’t rely solely on this fund. For one, the amount of money isn’t that much. If you retire at full retirement age in 2016, your maximum benefit will only be $2,787.80. But according to the latest data from the Social Security Administration (SSA), the average monthly benefit for retired workers is an even lower $1,335.
As they say, don’t lay all your eggs in one basket. Whether it be a 401k or an IRA, make sure you have another retirement savings plan in addition to Social Security.
8. You’ve borrowed from your 401k.
It doesn’t matter how much money you have put aside in your retirement savings account if you’ve already taken money out of it. Although this withdrawal might have helped you in the short term, it can be detrimental to your long-term financial health in retirement. You’ll need to develop an aggressive savings strategy to get caught up again.
Keep Reading: 30 Greatest Threats to Your Retirement
9. You can’t live off of your current savings for a few months.
If you don’t currently have enough money saved to last you a few months in case of an emergency, such as losing your job, how do you think you’re going to survive 20 or so years in retirement? Rather than becoming discouraged, use this as a wake-up call to get your financial priorities in order so you can start focusing on your future.
Keep Reading: 12 Secret Moves to Double Your 401k
If all nine of these signs apply to you, don’t freak out — just start planning and saving today. Saving sooner rather than later is preferred, but saving later rather than never is always the best route to take.