Preparing for Retirement
It’s never too early to start preparing for retirement! If you’re young, start with a simple savings account. If you’re middle aged, you’re going to want to set up a serious plan with your bank or employer.
Did you know that most Americans spend 20 years in retirement? Not only will you want to continue the lifestyle you’re used to when you retire, you’re going to have ample free time to rediscover yourself and your marriage as well as travel and explore new hobbies. In other words, you’re going to need a lot of money.
Did you know that less than 50% of Americans have calculated how much money they need to save for retirement? None of us want to continue working into old age. According to the experts, you will need at least 70% of your current income just to maintain your standard of living.
Saving that much money seems daunting, but it can be accomplished with commitment and planning. Remember, money in the bank grows. So the earlier you start, the better. For example, if you saved $5,000 each year (with 7% annual earnings), you would have $316,245 after 25 years! That number would increase to $691,184 after 35 years.
If you’ve already started saving, great! If possible, gradually increase the amount of money you put into your savings each week/month. Remember, saving for retirement shouldn’t be seen as a chore or an option, but a priority.
Employer-Based Plans
One of the easiest ways to save is to start a plan with your employer. Sadly, only 70% of Americans with access to contribution plans participate. First, find out if your employer offers a savings plan (like a 401(k)). Sign up and contribute as much as you can. Not only will the plan lower your taxes, but your employer may contribute as well.
Many retirement plans offer automatic deductions, making the process simple. Over time, tax deferrals and compound interest make a huge difference in the amount of money you save.
If your employer doesn’t offer a savings plan, suggest one. Not only will this help him or her attract employers, but most plans benefit the employer as well.
Pension Plans
Find out if your employer has a pension plan and check to see if you are covered. You can find out what your benefit is worth by asking for an individual benefit statement. You might even have benefits from previous employers.
How to Save
The way you save is just as important as the amount of money you save. The type of investments you make will determine how much money you will have for retirement. Reduce your risk and improve returns by diversifying your investments.
Knowledge and financial security go hand in hand. The way you invest will change over time depending on your goals, age, and financial circumstances.
Don’t forget to talk with your spouse about saving for retirement. He or she needs to be saving too! And some retirement plans provide benefits to the worker as well as the spouse.
Never Touch your Savings!
If you withdraw from your retirement plan early, you will lose principal and interest; you may also lose tax benefits and be charged a penalty. If you switch employers, leave your savings in your current plan or roll it over to a new plan or an IRA.
Individual Retirement Accounts (IRAs)
IRAs are perfect for small business owners and self-employed individuals. There are many types, including Roth IRAs, SIMPLE IRAs, and SEP IRAs. You can deposit up to $5,500 each year into an IRA. That number goes up after you reach age 50. IRAs provide tax advantages and allow you to start with a small amount of money. If you have a hard time sticking to plans, speak with your bank about setting up automatic deductions from your savings or checking account.
Social Security
If you haven’t looked into it already, find out what benefits you are entitled to via Social Security. On average, benefits equal about 40% of your pre-retirement earnings.
You can set up an account and view an estimate of your benefits on the Social Security Administration’s Website here.
We’re not all financial experts. Don’t hesitate to speak with your bank or a financial advisor if you have questions regarding your retirement plan. And remember, the earlier you start saving, the better!
