The 5 Steps to Take For Your Retirement Right Now

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What do you think of when you picture your retirement? Do you imagine walking off the job the day after you turn 65 and spending your remaining years painting, traveling the world, or reading novels on your front porch? I’d venture a guess that you don’t think that’s actually how you’ll retire. And I bet you don’t think that way for a few reasons.

Maybe you entered the workforce during the 2008 recession and watched the earning potential of your career take a major hit. Maybe you’ve lost your job or are at risk of losing it during this pandemic. Maybe the combination of two major economic crises in as many decades, on top of widening wealth gaps between the haves and have-nots in the United States, has made you feel like that ideal version of retirement is out of reach.

Or perhaps you’ve realized that you might live longer than generations before, as the U.S. expected lifespan slowly climbs upward, and that it’ll cost you move than ever before to make it through your old age. For instance, the Employee Benefit Research Institute suggests that Americans will need nearly $400,000 earmarked just for healthcare spending by the time they turn 65 for a 90% chance of having enough to pay for their healthcare in retirement.

And you’ve probably noticed that defined-benefit retirement plans, like pensions and Social Security, (the latter of which only has 15 years left of paying out full benefits) are shrinking or disappearing entirely, instead being replaced with defined-contribution plans (like 401ks), which place the burden of saving enough for retirement on individual workers.

This combination of economic, health, and policy changes within a short amount of time can seem to paint a rather dystopian future where we’ll be clocking in and out of a job well into our 80s, maybe even working right up until we die.

I have three things to say in response to that:

First, that dystopian future? It’s already the reality for many Americans today for whom “traditional retirement” was never going to be an option. Take a look at the wealth gap in the U.S. right now. An individual’s wealth, or net worth, is different than their income, or what they earn from doing work. To explain further, wealth is a measure of assets—like real estate, savings, and retirement accounts—minus debt. The average wealth held by families in the bottom 50% has actually decreased over the last few decades, and that wealth inequality is particularly stark when you look at families of color.

In 2016, the median white family had seven and a half times the wealth ($163,000) of the average Hispanic family ($22,000) and 10 times the wealth of the average Black family ($16,000). As is often the case, things are worse when we look at wealth by gender: the median single millennial white man’s wealth (at $15,377) is nearly twice as high as the average millennial white woman’s ($8,514), which is twice as high as the average millennial Latinx’s ($4,043), which is almost twice the average Black woman’s ($2,683).

Those massive inequalities in wealth can be traced back to the States’ long history of racial discrimination, from slavery to prohibitions against households of color buying property to the exclusion of domestic workers from public programs like Social Security, and gender discrimination, from prohibiting women from owning property, earning advanced degrees, or accessing credit in their own name. (Or, in more modern times, classifying the time women need to take off from the workforce to care for children as “non-income-earning” years when it comes to calculating their Social Security benefits, giving them less money, even though women live longer and women’s domestic work is valued at $3.2 trillion a year.)

Second, working past our 60s isn’t necessarily a bad thing, especially since complete retirement can cause a decline in mental and physical health, generally understood to stem from a sense of purposelessness, reduced physical and mental exertion, and increased isolation. Recent studies found that retirement may increase the probability of clinical depression by 40% and the probability of having at least one newly diagnosed physical ailment by 60%. Working, especially part-time or self-employed work, past the age of 65 can actually be a good thing.

And third, there’s no need to throw up your hands and accept that your retirement fate, however rosy—or not—it may look, is written in stone; there’s still plenty of time to figure out what you want your later years to look like and start preparing for them now.

Stephanie Xenos, the founder of The Money Muse, reached financial independence and “retired” at age 32, with enough investments (spread across stock, retirement accounts, and real estate) to live off of the passive income she created. She encourages her financial counseling clients to start by imagining their “future retirement self” now. “Don’t wait until your retirement to figure out what you want to do during it,” she says. “Pull some of those things into your life now.”

She recommends that her clients explore their interests through side hustles that might bring them a little extra income along with the opportunity to write off expenses at tax time. “It can feel really good and build you up to make money from doing that,” she says. Xenos herself currently managers an investment property in Greece while running her financial consulting company at the same time even though she has “retired.” “I know myself and I would go crazy if I was doing nothing,” she says. “I’m going to be working on new projects. They’ll change and evolve over time, but I never see myself without a handful of projects. I love the variety; I love to have different things to think about and work on.”

Financial advisor and finance professor Brandon Renfro, PhD, CFP, isn’t planning on ever fully retiring, either. “I doubt there will be a time when I quit working,” he says. He advises his clients to think about part-time employment as a good way to not just earn extra income and benefit from continued social contact and mental stimulation, but also to get some additional insurance coverage beyond Medicare for their later years.

However, acknowledging that you may be working in some capacity during your twilight years isn’t an excuse to not get your finances in order now, especially because unplanned events, like health crises, might take you out of the workforce earlier than you’d like.

Here’s what our experts suggest doing with your money right now to best prepare yourself for your future retirement, keeping in mind the pandemic we’re still very much in the middle of.

1. Recognize that personal finance is a privilege and focus on the basics first.

If you have enough money coming in that you’re not worried about paying each month’s bills, then you have the time, money, and energy to focus on the future. If you don’t, that’s okay, says Xenos. Just focus on cash flow management for now. “Make sure you have a spending plan and have a handle on the income that’s coming in and the money that’s going out. Make sure that even if it’s super slowly, you’re saving up a little money in your emergency savings.” Once you have a balanced budget and at least six months of expenses saved up in your emergency savings, you can move on to the next step.

2. Shift your focus to debt management.

This might not always be step number two, says Renfro, but it certainly is during a pandemic, when the potential of people losing their jobs is elevated. If you have extra money at the end of the month after paying off your bills, apply it towards smaller debts like car loans or outstanding credit card balances. “I’ve taken a more defensive approach, paying off some of my shorter-term debt that I normally carry and don’t worry about,” says Renfro. Getting ahead on debt payments will reduce your future expenses (and thus extend the life of your emergency fund) in case you lose your job unexpectedly.

3. Shore up your emergency fund.

Once you’ve paid off your smaller debts, if you still have money left over, Renfro recommends adding it to your emergency fund. You can keep that money in a high-yield saving account to make sure you’re getting the best possible return but still have easy access to it. “Think of it as insurance against your retirement savings,” he explains. “If you lose your job and are stuck in a position of needing to pay expenses, if you have to dip into your 401k, you’ll get hit with penalties.”

4. Take advantage of retirement benefits that are available to you.

After adding a few more months’ worth of expenses to your emergency fund, Renfro suggests making sure you’re maxing out whatever retirement benefits you have access to. That might mean putting enough money into a company 401k to get the full match amount offered by your employer, or putting the maximum amount into an IRA (which is $6,000 in 2020 for those under 50) if you’re self-employed.

5. Educate yourself and get comfortable.

After you deposit money into your retirement accounts, make sure it’s not sitting in a settlement fund (aka a money market). Put it in a low-cost index fund or a mutual fund geared towards a target retirement date—and then make sure that you’re comfortable with it going up and down. “Make sure you know and understand the context of what you’re doing,” says Renfro, “and that markets can be volatile.” If you’d pulled your money out of the markets when the pandemic began, he says, you would’ve missed out on what turned out to be a quick recovery. “Being too defensive is being a little short-sighted.”

Planning for retirement during a pandemic that is cutting futures short and destroying economic plans may feel futile. But there’s never been a more important time to do it, says Xenos, who notes that “the future of work, traditional work, is more tenuous.” No one knows what the world will be on the other side of this current crisis, but taking your retirement planning into your own hands can help you feel prepared for whatever comes next.