4 signs you're on track for retirement

Planning young: a retirement roadmap
Planning young: a retirement roadmap

Most people worry at least a little about whether they'll have enough money to be comfortable once they retire -- and they're right to be concerned; 66% of Americans have less than $50,000 in retirement savings, which is nowhere near enough to live on.

Here's how you can tell if you're doing a better job of retirement planning than the average American.

You've picked a smart retirement date

Your age at retirement will have a major impact on your retirement finances, for several reasons. First, once you retire you'll stop saving and start spending the money in your retirement accounts. That means you've got to have enough in those accounts by that point to last you for the rest your life.

Second, your age when claiming Social Security will determine how large your benefits are throughout your retirement. Retiring before full retirement age will apply a penalty to your Social Security benefits, while waiting until after full retirement age will pad your benefits checks with delayed retirement credits.

And third, if you're fortunate enough to have a pension coming to you from your current employer, the amount you'll receive from that pension is based on how long you've worked for that company. In fact, most pensions require you to stay with your employer for a certain number of years to get anything at all. It's important to take all these factors into consideration when choosing your retirement date.

You've calculated your income needs

Your Social Security statement will give you a rough idea of how much money you can expect from those benefits, but unless you're an extremely frugal person indeed you'll need more money than that during your retirement just to get by, let alone to be comfortable. Figuring out how much income you'll need over and above your Social Security benefits is a necessary step in any retirement plan, since you'll likely need to produce this income from retirement investments.

When calculating your retirement income, err on the side of more rather than less because first, you may have unexpected expenses; and second, there's no guarantee that your Social Security benefits will be as large as you expect. Changes to the Social Security program may significantly reduce your benefits checks or even (in a worst-case scenario) eliminate them altogether.

You're consistently saving enough to hit your goals

Knowing how much retirement income you'll need will tell you how much money you need to save in total, and your retirement date is your deadline is to save everything you need. These two pieces of information will allow you to figure out how much you've got to save on a monthly or annual basis, starting right now. Plug these two factors into a retirement calculator, assume a fairly conservative 7% annual return, and you'll know just how much you need to save. If that number is equal to or less than the amount you've actually been saving on a regular basis, you're doing extremely well in your retirement planning and preparation. If not, you'll need to do some catching up to get on track for retirement.

You're managing your retirement savings wisely

What you do with all that money you've been saving will make or break your retirement plans. First, that money should be going into a tax-advantaged retirement savings account such as a 401(k) or IRA -- NOT a standard brokerage account or bank savings account. The tax breaks you get from a retirement savings account are absolutely necessary in order to get high enough returns to hit your savings goals.

And second, the money should be invested in stocks and bonds, with perhaps a small percentage in alternative investments. Allocating the money between stocks and bonds based on your age will help you to maximize your returns while minimizing the risk. The standard retirement asset allocation formula is to subtract your age from 110 and put that percentage of your investments in stocks, with the remainder in bonds. For example, a 40-year-old would have 70% of his retirement savings in stock investments and the remaining 30% in bonds.

What if you're not on track?

If you've accomplished each of these four tasks already, congratulations! Barring some disaster, you should be able to enjoy a comfortable and pleasant retirement. If you've missed one or more of these signposts, however, you can still make a course correction. For example, if your retirement savings money has been sitting in a bank savings account, you can open an IRA and start dumping money into it immediately. You probably won't be able to transfer the full balance all at once because IRAs have annual contribution limits, but you can max out that limit every year until all the money is safely tucked away.

If you have access to a 401(k) account through your employer, even better -- the annual contribution limits on 401(k)s are higher than those for IRAs, so you'll be able to put more money in each year.

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The important thing is to act immediately to correct any issues with your retirement plan. The sooner you get started, the easier it will be to get back on track.