How to Build Financial Literacy When You're Saving for Retirement

How to Build Financial Literacy When You’re Saving for Retirement


Written by John Rothans

Apr 23, 2021

Saving for retirement should be a long-term goal, not a short-term target. Becoming financially literate can help you achieve that goal, enabling you to estimate how much to save for retirement and which types of accounts can help you get there.

Become More Financially Literate

Financial literacy can be empowering. For example, a 2021 survey by the TIAA Institute and the George Washington School of Business found that Americans with greater financial literacy spend less time dealing with financial issues and problems.

“Our data shows a direct link between financial literacy and financial well-being and demonstrates how knowledge can help better position Americans against adverse economic conditions,” says Annamaria Lusardi, academic director of the George Washington University School of Business’s Global Financial Literacy Excellence Center.

This link between financial literacy and financial well-being definitely involves saving for retirement. So how can you boost your financial literacy to get a better handle on retirement savings? Much of this work centers on figuring out where you currently stand financially then mapping out where you want to go.

Keys to this include:

  • Relying on dependable sources for information about financial literacy
  • Tracking your income
  • Creating a budget
  • Managing your spending
  • Concentrating on reducing or eliminating debt
  • Maximizing your savings, including retirement savings
  • Weighing the risks and returns of various asset types

The bottom line: While you can consult with a financial advisor or another financial expert to polish your financial literacy, it’s up to you to arm yourself with financial knowledge.

“Financial literacy is not something you will magically know…. The majority of schools are not teaching personal finances to students. Parents and family may be misinformed or lack a deeper knowledge that children [can] learn from,” according to career website The Ladders.

Calculate Retirement Savings

Once you’ve wrapped your head around basic financial knowledge, how do you accurately calculate how much money you’ll need to save for retirement?

There’s no quick and easy answer to that question. But personal finance website The Balance offers this recommendation: Multiply your current spending by 25. That, the website explains, represents the size your portfolio will need to be to safely withdraw 4% every year for living expenses during retirement.

So let’s say you spend $60,000 a year. If you follow the multiply-by-25 equation, you’d need a portfolio of $1.5 million in the first year of retirement.

Consider also that you’ll want your portfolio to keep pace with inflation.

If you want to do some more math, check out retirement calculators built by personal finance websites Bankrate, SmartAsset, and NerdWallet.

Determine Your Asset Mix

After you run the numbers and have a general idea of how much money you’ll need during retirement, what comes next? Well, it’s time to give some thought to what sort of asset mix you’ll need to reach your retirement goal.

Vanguard, a financial services provider, points out that your asset mix should balance your retirement timeline with your comfort for risk.

Whether you’re 20 or 5 years from retirement, you should carefully weigh how much money to allocate to various asset classes.

Based on your retirement timetable and your risk appetite, you’ll want to consider putting a certain amount of money toward securities like stocks, bonds, mutual funds, and exchange-traded funds. You might buy these assets through your own brokerage firm or add them to a retirement account like a 401(k) or a traditional or Roth IRA. Additionally, you may want to diversify your portfolio through alternative assets such as gold or real estate.

A hybrid between a regular IRA and a pool of alternative assets is a precious metals IRA. With this type of IRA, you can buy physical gold or other precious metals to help diversify your portfolio.

If the next page in your book of financial literacy includes diversification into alternative assets, contact U.S. Money Reserve. We can help you understand the role a precious metals IRA can play when incorporated into your overall retirement strategy.


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