Unlock Your Retirement Potential: 2 Proven Strategies to Secure Your Financial Future

Retirement is a chapter in life that many Americans approach with a sense of both excitement and trepidation. As a 2023 GOBankingRates survey reveals, the fear of running out of money during retirement is the primary financial concern for over 59% of Americans. However, with the right planning and proactive measures, this worry can be effectively mitigated. New research from Morningstar sheds light on two key strategies that can help most individuals avoid financial shortfalls in their golden years.

Unlock Your Retirement Potential: Proven Strategies for Financial Security

Maximize the Power of Workplace Retirement Accounts

The Morningstar research highlights a striking statistic: 57% of those not participating in a defined contribution plan, such as a 401(k) or 403(b), may face a shortage of funds in retirement. In contrast, the percentage drops to only 21% for those with 20 or more years of future participation in such a plan.Doug Carey, a chartered financial analyst and the president of WealthTrace, emphasizes the significance of this finding, stating, "Saving to a tax-deferred retirement account over many years is the single best way to never run out of money in retirement. I always recommend that people begin saving to a tax-deferred retirement account as soon as possible."The power of compound growth plays a pivotal role in this strategy. As Zack Swad, the president and wealth manager at Swad Wealth Management, explains, "When individuals contribute consistently over two decades or more, the earnings on investments can compound, significantly boosting retirement savings." However, he cautions that this approach is only truly effective if individuals contribute a sufficient amount, typically 10% to 15% of their income, and take full advantage of any employer matching, which is essentially free money.Merely contributing to a retirement account for 20 years is not enough, according to Swad. The investments must also be properly allocated to ensure optimal growth and alignment with the individual's retirement horizon.

Delay Retirement for Greater Financial Security

Delaying retirement is another powerful strategy to mitigate the risk of running out of money in retirement. The Morningstar research found that only about 28% of U.S. households would experience financial shortfalls if they retire at age 70, compared to 45% if retiring at age 65.Swad explains the benefits of this approach, stating, "Waiting until age 70 to retire allows for larger Social Security benefits. Each year past the full retirement age – typically around 66 to 67 – increases benefits by about 8%, which can lead to a substantial increase in guaranteed lifetime income. Additionally, delaying retirement reduces the number of years drawing down savings, allowing more time for investments to grow."However, Swad also highlights the caveats associated with this strategy. It hinges on individuals being healthy enough to work until 70, having sufficient savings or other income sources to support themselves if unexpected job loss or health issues occur before 70, and ensuring their portfolio is properly invested for their retirement horizon.

Comprehensive Retirement Planning: Balancing Strategies and Considerations

While saving consistently in a retirement account and delaying retirement are two powerful strategies, Swad emphasizes the importance of a broader financial plan that takes into account various factors."It's crucial to consider lifestyle and spending needs in retirement," Swad says. "Saving in a 401(k) for 20 years and retiring at 70 won't be enough if future expenses, such as healthcare costs, are underestimated. Individuals should plan for inflation, healthcare and longevity risks, making sure their retirement assets align with their expected lifespan and costs."Ultimately, the combination of strategic savings, proper investment management, and a comprehensive understanding of potential risks and expenses is essential for achieving a secure and fulfilling retirement. By implementing these proven strategies and adopting a holistic approach to retirement planning, Americans can increase their chances of avoiding financial shortfalls and enjoying their golden years with confidence and peace of mind.