How To Plan for Retirement during Tough Economic Times

There are many retirement options to consider, ranging from the traditional 401k and Roth IRA to more complex savings strategies, such as investing in real estate portfolios. Good retirement planning — in any economy — begins with knowing your financial goals and creating a habit of consistently saving, any amount, toward those goals.?

By Helen Harris?

You may be confused on where or how to start saving for your retirement, and the current economy might not exactly encourage you to put more money aside.?

And as much as you might want to cling to every dollar in your checking account — this is exactly the opposite of what you should do to plan for a successful financial future.?

Learn How and When To Plan for Retirement — In All Economies?

One of the biggest ways to start planning for retirement is to get clear on your goals. Where do you want to be in ten years? What do you value? What is your ideal quality of life? Do you want kids and a family soon??

These are all questions that Jessica Weaver, CFP, CDFA, CFS, wealth advisor and founder of the Women's Wealth Boutique, recommends you ask yourself before you decide where to allocate your money and begin planning your retirement.??

From there, she says it will be easier to prioritize your goals and give them each a time frame.?

“You can then open accounts or assign accounts to these goals and align each account with the right investment that fits the time frame,” said Weaver. “If your time frame is under a year, cash might be a great option for now or some CDs.”?

As far as when to start your retirement plan, the sooner you can start the better. And while it may be hard to put cash away during an economic decline, it’s critical that you stay the course and continue to save for your future.?

Fidelity advises the earlier you start, the more time you have for your investments to grow and recover from the market's inevitable downturns. If your retirement is decades away, it may be hard to think or care about it. But when you are young is precisely the time to start saving for retirement. Even though it can be a challenge to save for the future, giving your savings those extra years to grow could make the struggle worth it.

“Once you earn your first dollar, it is your responsibility to plan for it,” said Weaver “The fact is the sooner you begin to plan and save for retirement, the less money overall you will have to save.”?

Weaver notes that studies show when people work with a financial advisor and are active in their financial plan, they not only earn more money, but also have security and confidence with their money most people are missing — especially during uncertain economic times.??

Stick To Proven Strategies — But Make Adjustments if Needed

You don’t have to reinvent the wheel and figure out a new way to save for retirement just because of the current economic turmoil. Many generations have successfully planned for retirement by using one of the following options:?

• 401(k)
• Traditional IRA
• Roth IRA
• SEP IRA
• Simple IRA and Simple 401(k)
• Solo 401(k)?

In addition to the above standard retirement methods, Weaver also states that people are getting creative with their investments, such as gold or other precious metals, real estate and other alternatives to traditional investments.?

Forbes reports that for many, investing in single-family rental homes can make a huge difference to their retirement portfolios.

Why is this? Because for many, defined contribution (self-funded) retirement plans, such as 401(k)s, are often underutilized, and even social security benefits are strikingly low (if you factor in the cost of rent, gas, groceries, etc.).

Forbes provided the following information:?

• According to a 2015 report from the Government Accountability Office (GAO), the median retirement savings for Americans ages 55 to 64 was $104,000. If invested in an inflation-protected annuity, this would equate to a $310 monthly payment.
• In December 2020, the average Social Security benefit was $1,503 per month, and the maximum possible Social Security benefit for someone who retired at the full retirement age of 66 or 67 was $3,148 in 2020.?

And while real estate does come with its own set of risks and challenges, the cost to get started with single-family rentals is relatively low and your investment will most likely be cash-flow-positive. You will also build equity over time, and real estate values typically go up.

But what if you’re just contributing to your company’s 401k or Roth IRA and you find that you’re struggling each month due to the economic turmoil??

It’s okay to adjust how much you’re putting aside. You can revisit it later and increase your contribution then.?

For instance, Fidelity advises that you save at least 15% of your pre-tax income each year for retirement, which includes any employer match.

However, you should keep in mind that your personal target savings rate can depend on a range of factors, including not only today’s economic situation but also when you plan to retire, your retirement lifestyle, when you started saving and how much you've already saved.

So, you may choose to keep that percentage at 15, or you may feel comfortable reducing it to 10% for the next two years while the economy adjusts and prices fall back to normal.?

Weaver adds to this, stating that if you are struggling with the high inflation or are living paycheck to paycheck, it is still a best practice to continue to contribute toward your retirement — even if it falls to 1-5% of your income. She says saving even $10 a month toward your retirement is better than halting your retirement savings altogether.?

“It is very hard to begin contributing after you have paused [contributions] completely, but it is easier to bump it back up if you have had to lower it for a period of time,” said Weaver. “Saving money is a new behavior to learn, so start small and build from there. That can be the key to making saving money a sustainable habit.”?

Forming a habit is perhaps the most important aspect of your retirement savings plan. Even if you make plenty of money, it can be challenging to put money aside if you haven’t formed a habit of doing so. The discipline has to be there to save for your future.?

“As people earn more money, they tend to up their expenses, and it can be hard to carve out that retirement savings piece after you've already maxed out your income with new expenses and liabilities, such as a more expensive mortgage,” said Weaver.?

Top Takeaways?

How To Plan for Retirement during Tough Economic Times

• One of the biggest ways to start planning for retirement is to get clear on your goals.?
• “Once you earn your first dollar, it is your responsibility to plan for it. The fact is the sooner you begin to plan and save for retirement, the less money overall you will have to save.”?
• Besides traditional retirement avenues such as Roth IRAs and 401ks, people are getting creative with their investments, such as gold or other precious metals and real estate.?
• You must get in the habit of saving for your retirement and make it a priority in all economies.?
• If you are living paycheck to paycheck or are struggling with your current contribution to your retirement plan, it is okay to reduce the amount — the important thing is to keep the habit of saving going.