Financial Planning Experts: How To Balance Retirement Savings With Your Other Goals
Written by
Nicole Spector
Edited by
Chris Cluff
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Saving for retirement can be a tall task; in fact, millions are heading into their golden years with no savings. One of the reasons that saving for retirement is difficult is that you have to balance it with other financial goals that are equally essential.
Balancing multiple goals at once can be tough — especially when it comes to finances. And not all goals exist on the same timeline, which only adds to the challenge. With the help of financial planning experts, GOBankingRates has cobbled together a way to balance your retirement savings with your other goals.
Set Clear Financial Goals
First, you should outline your short, medium and long-term financial goals so that you have a firm grasp on what you need to do.
“While these do include long-term items like planning for retirement, there will likely also be goals across your financial journey, like building an emergency fund, saving for a down payment on a house, funding higher education or paying off debt,” said Maya Sudhakaran, head of growth and acquisition at Plynk.
Budget Aggressively
Budget planning is essential, and the more clear and detailed and aggressive with cuts you are, the better shape you and your money will be in.
“Writing down your budget and decluttering expenses will help identify areas where you can cut back and increase your retirement savings,” said Jeremy Babener, president at Structured Consulting. “Targeting small items to remove from your budget, like a daily luxury drink or meal, can free up more money for retirement savings without major sacrifices.”
Save and Invest the Right Amount for Retirement
Saving for retirement while balancing your other goals is impossible to do if you don’t know how much to set aside for retirement investments. “Try to live off of only 70% of your take-home pay and then invest the rest,” said Paul Tyler, CMO at Nassau Financial Group. “If you do the math, you’ll be astonished at how fast your savings will grow over time.”
If you can’t get by on 70% of your take-home pay, aim for putting aside 10% to 20%.
“Then, budget for your other goals based on the remaining income, ranking them by importance and time sensitivity,” said Sammie Ellard-King, personal finance advisor at Up the Gains.
Diversify Your Investment Portfolio
Creating a diversified investment portfolio is crucial.
“This not only spreads the risk but also allows for different investment vehicles to cater to different goals,” said Casey Jones, founder and head of marketing and finance at CJ&CO. “For example, high-risk, high-return investments could be used for long-term goals like retirement, while safer, low-return investments could be used for short-term goals.
Build Out a Solid Retirement Strategy
Setting aside as much as you can for retirement investments is one thing; but you also need to have an ironclad plan for these savings. Start with your place of employment.
“Many employer plans allow the participant to use payroll deductions to fund their retirement account,” said Evan Potash, wealth management advisor at TIAA. “This makes it easy to save for other short and midterm goals. You can’t miss the income you don’t receive. At minimum, you should save enough to get a full employer match. If you can add more, then you should.
“The 2023 limit for a 403(b) or 401(k) is $22,500 per year, and if you are 50 or older, you can add another $7,500 as a catchup provision. Typically, you can change the payroll deductions on an employer plan as needed until you are comfortable with your net paycheck.”
Those not covered by an employer plan can fund a traditional IRA.
“There are income limits on whether you can deduct it,” Potash said. “2023 limits are $6,500, and there is a $1,000 catchup provision for being 50 or older. There may be an opportunity to save in a Roth IRA with the same limits, but there is an income threshold limit, as well. Self-employed people may be able to shelter more into a different type of IRA, like a SEP, Simple IRA or a solo 401(k).”
Save the Right Amount for Emergencies
Emergencies are exactly that: emergencies. It’s imperative that you have an untouchable fund to cover any sudden expenses that may pop up.
“You never know what unexpected expense will come up,” Potash said. “Whether you need a new roof, a water heater or a car repair, it’s important to be ready. You shouldn’t rely on credit cards, since the average rate is about 20% if you carry a balance. A general rule is to have 6 months of expenses saved in a liquid, insured bank account. Many banks are currently offering 5% APY for a savings or money market [account].”
Automate All Savings
You’ll want to make saving as seamless and easy as possible. Take the automated route.
“Setting up automatic contributions to your investing accounts can make reaching your retirement or other financial goals an easy habit,” Sudhakaran said.
Use Smart Apps
There is no shortage of smart apps on the market that will increase your potential to trim costs.
“Don’t forget to utilize smart apps to find affordable gas, restaurants or special deals,” Babener said. “These apps can help you save money without compromising your quality of life.”
These apps prove especially useful if you’re budgeting for a big expense, like a vacation.
“Be proactive and use apps or a travel agent to find good deals,” Babener said. “This ensures your budget remains intact while still enjoying time away from work.”
Stay Flexible
“Being flexible and adapting to changes is the key to staying on track,” Babener said. “Balancing affordability and quality allows you to enjoy life within your budget through research and creativity.”
Get a Financial Advisor or Retirement Planner
Financial advisors and retirement planners specialize in these issues and can address your situation in a tailored way.
“They stay up-to-date on the latest tax laws, investment strategies and financial products to help you make informed decisions that will make your money work for you,” said Young Pham, a financial advisor and investment analyst at BizReport. “Additionally, a professional will assess your unique financial situation, goals and risk tolerance to create a personalized retirement plan that meets your needs and aspirations.”
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