Yes, You Still Have Time to Crush Your Retirement Goals

If your 401(k) balance isn’t what it should be, you aren’t alone. According to projections from a 2022 study conducted by Urban Institute, a lot of millennials could use a little more $$$ in their retirement account. But how do you up that number? We asked Kathy Entwistle, a certified financial planner and the founder of The Money Date Box, to share her advice on how to get (and keep) your retirement income on target — even if you’ve fallen behind.

FEATURED EXPERT: KATHY ENTWISTLE

Kathy Entwistle - Certified financial planner and founder of The Money Date Box

How do I know how much money I’ll need to save for retirement?

Follow these steps: 1. Determine how many years you plan to live in retirement. Hint: It’s probably better to estimate more years rather than less. Let's use 30 years as an example. 2. Now, in today’s dollars, how much do you anticipate needing to spend per month in retirement? Let's estimate $5,000 per month in today's dollars. 3. Multiply that number by 12 to get your annual spending ($60,000 in our example), and 4. Multiply that number by 30 years to get the total retirement funds needed ($1,800,000 in this case) to cover you for all 30 years.  

That may be a scary number. Just remember you may have other sources of retirement income to help reduce what you need to save. Do you have a pension or an estimate of your social security? That will reduce the retirement funds you need to save. Let's say social security is $40,000 per year and your pension or retirement account generates $15,000 per year. Now you just need to come up with the difference. In our example, that’s $5,000 per year. Now consider how old you are and how many years you have to save. These are all important components in the equation to success.

Can I save for retirement and lower my tax bill at the same time?

The answer is yes. Contributing to a retirement savings plan at work or on your own with an IRA can help you reduce your taxable income and can help set you up for future success. The money you pay into a traditional retirement vehicle will allow you to defer paying income taxes on the amount you deposit into your retirement account. Those funds will also grow, tax-deferred, until you use the funds for retirement.

You might also want to consider a Roth IRA or check and see if your company allows you to invest in a Roth 401(k). The younger you are, the more beneficial the Roth is. You don't get the immediate tax benefit, but you do grow the money, tax-deferred. Instead of getting the tax benefit up front, you get the benefit at the end because you do not pay taxes on any of the funds when you take them out after the age of 59 ½, including the growth. Considering the time value of money and compound interest, this is a great tax advantage in your later life.

I’m in my 40s. How should I prep for retirement if I haven’t started?

It's never too late, you just need to start. [If you’re an elder millennial in your 40s], think about doubling down to make up for lost time. Max out any retirement plans and invest regularly. Create a process, a forced habit, to contribute money weekly and monthly into your investments that can grow, long-term and for your future.

Change doesn't happen overnight, especially when it comes to your finances. You can give yourself a leg up by implementing some financially savvy strategies to help you grow your bank account quickly. For example: Canceling unnecessary subscriptions, reducing your transportation costs, limiting meals out, using coupons, shopping around for deals, enrolling in loyalty programs, carrying cash instead of swiping for purchases, reevaluating your biggest bills, or trying no-spend days.

If you’re approaching retirement in 20-plus years, you still have time on your side and by shifting savings into investments, you have a better opportunity to use time and compounding in your favor.

What are some investing strategies for short- and long-term goals?

It is critical for you to know how to match up short-term goals with short-term money. Cash, money market, high-yield savings accounts, certificates of deposit, and treasury bills are all short-term investments. They’re [mostly] very liquid and you can keep the maturity dates short to match the goal of a vacation, a car purchase, etc.

For longer-term goals, such as retirement, you have a longer time horizon and the ability to withstand the volatility of the markets, knowing you have a greater chance of growth with a long-term investment. This is where you can invest in stocks and bonds in order to achieve greater returns over the long term to keep up with inflation and the cost of your future goals.

I recommend you create strategies versus sacrifices when it comes to your money.  

This interview has been edited and condensed for clarity.