Saving for retirement, even if you're behind

It's never too early to start saving for retirement. That's true, even if you're at the beginning of your working years.

But let's face it, not everyone follows this advice.

About half of today's workers aren't ready for retirement, according to the National Retirement Risk Index, published by the Center for Retirement Research at Boston College.^{See note1} The index defines being prepared as maintaining your before-retirement lifestyle after you've retired.

"Retirement readiness is a fuzzy concept," says Robert Steen, USAA Advice Director for Retirement and Complex Planning. "We can try to assess numerically if someone is financially ready, but individuals' self-assessments may be different."

Steen adds that some people believe they're well-prepared for retirement, but in fact, they may not be. "It's easy to assume you need a certain amount in retirement, but that doesn't necessarily account for how long you may live, your retirement lifestyle, legacy wishes and health shocks," he says.

If you're down the road in your career but have been lax in saving for retirement, you're clearly not alone. But don't let that lull you into inactivity.

Now is the time for everyone to get serious about saving for retirement. Come up with a plan for the future and act on it.

Start with a retirement savings plan.

Defining what you need in retirement and creating a plan to get there helps in two life phases: the accumulation phase and the decumulation phase.

Accumulation phase.

During this time, you're actively saving and investing for your retirement. This is when having a long-term plan helps, because you don't have to worry if the market feels like a roller coaster. You have realistic expectations about what it takes to achieve your goals.

"When you have a plan, you know you're not bullet proof, but you don't have to panic when the market dips. If anything, you might like it, because it gives you the opportunity to buy securities when they are cheaper," says Steen.

Decumulation phase.

This is when you've retired and are spending money from your investments. You might be better prepared for poor market returns because you planned for what that could look like.

"Because of your plan, you set aside a couple of years' worth of money to ride out the bad market years," says Steen. "Maybe you planned on using some equity from your home during those times, or maybe you planned on delaying retirement or working part time. Nevertheless, you had a plan for situations involving market volatility."

How much should you save for retirement?

The general rule of thumb is to carve out 15% of your gross pay and have it automatically deposited into your savings and investing accounts. However, how much should you save for retirement is a hotly debated topic, with lots of moving parts that go into your personal calculation.

Although there are numerous factors that can affect how much you should save for retirement, some of the more critical variables that go into the calculation are:

• How much time you have to accumulate savings before you retire.
• How long you (or your loved one) will live.
• Rate of return on your investments before and during retirement.
• What is your best guess on what long-term inflation will be.
• How much you have accumulated already, or future inheritance.
• How much you will spend in retirement.
• Sources of guaranteed income such as Social Security or pensions.

There are other considerations that can be added to the mix as well, such as factoring in sequence of return risk from the stock market, taxes, and the desire to leave a legacy to family or charity.

Some of the factors mentioned above can only be guessed at, especially the farther out you are from retirement, and may be beyond your control. Some of the most powerful factors, and those where you do have a great deal of control, are time by starting to save as early as possible, the amount and frequency of your savings, and how much you spend now and possibly in the future.

For more information about potential retirement plan solutions, check out our advice article, Annuities, IRAs and pensions: Saving for retirement.

Control your expenses with a budget.

After you create a retirement plan, you may need to sock away more than your budget allows. As Steen says, "Awareness is half the battle."

When you know how much you'd like to have in retirement, you have a better idea of what you need to save.

Your next step is finding money in your budget to invest in your retirement. If you don't already have a budget, this is a great time to create one.

"Don't be afraid of a budget," says Steen. "Think of it as a tool that empowers you to take control of your money."

A budget should consist of two lists: one for your expenses and one for your income.

Steen says to consider big-ticket items like housing and transportation when looking at your expenses.

"Of course, there are the recommendations everybody knows about, like making your coffee at home instead of an expensive drive-through," he says. "But take a fearless approach to analyzing your biggest expenses and thinking about lifestyle changes that could have a big payoff."

Next, be sure your income still exceeds your total expenses. If not, you risk going into debt.

If you need more money, you could apply for jobs with a higher salary or better benefits. You could also take on a side hustle, as long as it doesn't interfere with your primary job. Or, if you're nearing retirement, you could commit to working a little while longer.

Tacking on a few more working years has triple benefits:

• First, you have that additional income to keep you from touching your retirement nest egg.
• Second, you might be able to delay the date you start taking your Social Security benefits. For every year you wait to take your benefits past age 62, you gain a 6 to 8% increase in your lifetime annual benefits.
• Third, if the market is down, you can ride it out a little longer.

Revisit your retirement savings plan.

"Depending on where you are in your journey toward retirement, we recommend that you periodically take a look to make sure your retirement savings plan is still aligned with what you want them to do for you," Steen says.

No matter where you are in your career, it's never too late to make adjustments to help jump-start your retirement savings plan. Consider working with a financial professional to review your retirement plan and ensure that you stay on track.