One Of The Most Important Financial Steps You Can Take

December 04, 2015

During our preparation of Thanksgiving dinner, my kids and I had a conversation about our family. There have been a lot of changes in the family over the last year or so. There have been several deaths, several births, several weddings and a few events that I’m probably forgetting as I write this. 

While we were decompressing (okay, fading in and out of naps after dinner), I saw an online ad for ancestry.com. I started using this and realized very quickly how little I know about my family history beyond my grandparents. There is a lot of information that I’m missing and I have to do some research to find that info over the next few months or years.

Just like I have research to do for my family tree, I meet with a lot of people who have a lot of research to do regarding their financial lives and how to get to a better spot. According to the most recent Financial Finesse research report, only about 20% of people, KNOW that they are on track to replace 80% of their current income in retirement. The other 80% either know that they aren’t on track or don’t know if they are or are not on track.

When it comes to retirement planning, there are not a whole lot of moving pieces for most people. With a little bit of research (less than I’ll need to work through my family tree), we could have the 80% who are unsure about their retirement picture understand now if they are on track or if they have some work to do, and it’s very easy! You can use this Financial Finesse calculator to help you determine if you’re on track or not.

There are just a few pieces of information that everyone needs to know in order to prepare a retirement estimate. For “fixed” sources of income, running estimates of Social Security benefits and any pensions are a vital part of preparing retirement projections. For “asset based” retirement sources, knowing your current balances, contribution rates and risk tolerance (conservative, moderate, aggressive) would be key pieces of data to have at the ready.

For those who are not on track to reach retirement goals, there are a few solutions. Increasing your retirement contribution rate by 1-2% each year can be a surefire winner. Deciding to re-balance investments is another positive step that people can take in order to maintain investment discipline. A financial professional can help you evaluate what other options could work to help get closer to replacing a sufficient portion of your retirement income.

There are many ways to move from the >80% who are either unsure of their retirement situation or know they aren’t on track into the ~20% (hopefully moving higher in the future), and if you know where you are today (via running a retirement projection), you can make any needed changes to move closer to your goals. For less of a time investment than putting together a family tree, you can take one of the most important steps toward a secure financial future. That step is running your retirement projection.