By Andrew Alessi, CFP, Senior Vice President, Key Private Bank
ALBANY – The COVID-19 pandemic and resulting financial uncertainty – including widespread layoffs and stock market volatility – have taken a toll on many Americans’ short- and long-term budgeting and savings goals, particularly when it comes to retirement planning.
Facing immediate and difficult decisions, by fall 2020 many people were decreasing or even stopping their retirement savings, according to multiple surveys, hurting any plans they may have had for retirement. As Americans and the economy recover on many fronts, now is the time to begin, revisit or reevaluate a long-term investment strategy for building retirement funds.
A smart retirement plan can help deliver more freedom and security for your life down the road. Consider that Social Security only covers about 40% of the average earner’s income, meaning you’ll need to make up the difference with income from retirement plans, other investments and potentially working part time. A general rule of thumb is that you will need about 80% of your pre-retirement income when you leave your job.
Where to Start
Financial hardships related to the pandemic have served as a reminder of the importance of having a plan and being prepared, and the KeyBank team has heard from a significant number of customers who want to know more about planning for retirement.
Fortunately, there are a few simple things you can do to save – and save consistently – in support of your future retirement and the lifestyle you envision, even if setting aside money isn’t top of mind for you right now.
First, build up an emergency savings account for unexpected expenses. We recommend beginning with the goal of keeping $1,000 in a savings account you can use for emergencies, then building that up to approximately six months of your take-home pay. Consider enrolling in an automatic savings plan to help make it a habit. Additionally, try to keep a cash buffer in your checking account to avoid accidental overdrafts.
If your workplace offers a 401(k), contribute to it – and if your employer matches your 401(k) contribution, save up to the matching percentage to capture your company contributions. Don’t stop there, though. Consider contributing the maximum 401(k) contribution for the most gain over the long term.
You could also start an Individual Retirement Account (IRA) or a Roth IRA (if you qualify per IRS guidelines), both of which allow you to begin with small contributions and increase them over time as you are able. (With a Roth IRA, note that the savings amount is taxed upfront, and not later when it is withdrawn.)
The key to saving is to be consistent and continuous, knowing that every little bit helps, especially if your retirement date is further away. And be patient with yourself: There may be times that you need to adjust your contributions due to other more immediate priorities, and that’s OK. Just be sure to reassess every year.
Staying on Target
Keep the long game in mind: Clearly define your retirement goals by considering what you want from a typical day in retirement: Are you traveling overseas a few times a year, taking in Broadway shows in New York or maybe upgrading your home with an art studio, exercise room or home theater? Your dream is yours alone – and no two retirements are alike.
A general rule of thumb is to estimate that every year, you’ll need between 70 to 80% of your pre-retirement income level to cover your retirement expectations, taxes and healthcare expenses.
Why reduced salary estimates in retirement? After paying your share of Social Security taxes and deferring income into retirement plans out of your paycheck, you may already be living on 80% of your salary today. Using a guideline of 70 to 80% of income in retirement may match what workers are already living on.
Also, plan for an additional lifestyle buffer expense of 5 to 10% of your retirement income needs for the first 10 years in retirement. Many retirees tend to spend more in those early years of retirement due to pent-up demand for travel and/or enjoying hobbies.
All of these considerations will help shape and fulfill your retirement vision – whether you’re traveling the world or settling into your current home.
Audit your income and current retirement contributions regularly and review your expenses to see whether you can make adjustments that would allow for additional contributions to your retirement planning. Look for supplemental or incremental sources of income options to boost your supply of short-term cash that would enable you to add to your retirement savings.
Consider other factors that will impact your retirement financially, including Social Security, healthcare options and alternative forms of employment such as part-time work. When it comes to Social Security, it may be tempting to claim it early – but the longer you hold out, the higher your monthly benefit will be.
Although Medicare eligibility begins at age 65, retirees may also find private health insurance before then through the Affordable Care Act’s federal exchanges. Finally, remember that retirement doesn’t have to be an all-or-nothing proposition: You may be able to bridge financial gaps with part-time or consultancy work.
To live the lifestyle you envision in retirement, you need a solid plan to get you there. Connect with your banker, and they can help you navigate the way to the retirement that’s right for you.
About the author: Andrew Alessi is senior vice president and Capital Region leader for Key Private Bank. He Can be reached at (518) 257-8741 or [email protected].
How to Avoid Fraud When Banking Online
Having the ability to pay for goods and services online without cash or checks makes it easier than ever to complete purchases and conduct bank business. But all that online convenience makes it easier for scammers and hackers to access bank funds online, too.
Hackers are continually coming up with new ploys to defraud unsuspecting victims. Here are some of the latest online banking security vulnerabilities, and ways to counteract them.
Conduct a Banking Security Checkup
Before banking online, find what security features your bank has in place to keep your online account and transactions secure. Be sure that your financial institution has implemented robust, industry-standard security measures such as the use of website encryption and strong sign-on requirements.
Also look for the option to use multifactor authentication measures whenever possible. That means that each time you log in, you’ll be required to answer security questions or supply a unique code, sent to you via text or phone call, along with your password.
If available, make use of biometric identifiers such as fingerprints and facial recognition, as they are an even more secure option for mobile banking.
Select Private Networks
Use a secured, password-protected network when banking online or when making online transactions to and from your bank account.
Don’t log in to your bank account when on public Wi-Fi, such as in a coffee shop, shopping mall or the airport, and don’t make purchases using your bank debit card on these networks either.
Instead of public Wi-Fi, you may opt to use cellular data or set up and use a virtual private network (VPN) on your devices. Even though bank transactions are likely to be encrypted, hackers could still attempt to collect your private information and/or intercept your communications.
Set Up Fail-Safe Measures
Sign up for account alerts from your bank to notify you of large transactions on your accounts or when the balance drops to a certain level. This measure can help you stop fraudulent attacks by giving you the opportunity to alert your financial institution quickly.
Monitor Your Account
In addition to receiving alerts for suspicious activity, you should regularly check your account balances and monitor your transaction history to be sure you recognize all activity.
Contact your bank and change your password if you notice something strange. Be sure to act fast: If you see fraudulent charges but wait more than a couple of days before reporting them, then you could lose out on some reimbursements.
By being aware of the most common tactics, you can help safeguard your finances when banking online and minimize the risks you face.