According to the United States Department of Labor, fewer than 50 percent of Americans know how much money they’ll need to survive retirement. Even though the average person will spend 20 years of his or her life in retirement, very few are currently planning for life after work. No matter how far away from retirement you are, it’s never too early to start saving. Here are five ways that you can start preparing for your retirement today:
1. Know Your Needs
The first step in retirement planning is to become aware of your post-work needs. On average, it is estimated that you will need about 70 percent of your pre-retirement income to live the same way you did as when you were working. This means that if you were making $40,000 per year, you’d need about $28,000 per year to live comfortably. If you still have a mortgage, car payment, or other debt when you retire, you will need to have more stored away in your retirement account. [editor’s note: if you are planning an active retirement with travel, golf etc. and /or you have health issues, you may actually spend as much in retirement as you do while working and you need to take inflation into consideration.
See:Â Do you know what you need to retire?
2. Start Now, Start Small
If you haven’t yet begun saving for your retirement, open a
savings account immediately. Even putting $50 a week into a retirement account will give you $200 a month, or $2400 per year. If you work for the next 20 years, you’ll have put away $48,000 on your own, and your money will have grown thanks to interest. Each new year, try to increase your weekly savings amount by at least $10. And include as large a portion of any raises you get as possible. One good system is to add at least 50% of any raise you get straight to your retirement fund. A tax-deferred account like an IRA is even better because your money will grow before taxes so the amount you have to earn interest on will be larger. A “Roth IRA” has benefits as well in that although you invest after-tax money you get to keep all of the interest and dividends tax-free. Â See: Retirement Planning- Start Early
3. Hands Off the Savings
Saving for retirement will do nothing for you if you withdraw money from your account. Make a deal with yourself, and your partner, that you will not touch your retirement savings except in the cases of extreme emergency. Even then, it’s often better to locate funds from other sources than it is to pull money out of your retirement savings. This is another benefit of an IRA, since there are severe penalties for early withdrawal you are less likely to do it on a whim.
4. Invest
Do you spend your tax return on a frivolous item each year? If so, you’re making a grave mistake. That chunk of change will work far better for you if you contact a professional financial planner and put it to better use. A financial planner can help you with Estate Planning and investing your money in a way that is most beneficial to your future. A professional can also help you diversify your funds, ensuring that you are getting the most bang for your buck. Plus he will help you focus and stick to your plan simply because he will be able to remind you of your goals if your willpower is weakening. See:Â The Downside of Using a Financial Planner
5. Pension Plans
If you’ve found a career that you plan on sticking with, talk to your employer about their pension plan or retirement savings plan. Your employer may offer automatic deductions, making it incredibly easy to contribute; you’ll never see the money in your paycheck. Because the unexpected can happen, you should find out what will happen if you quit, are terminated or change jobs before you retire. You’ll want to know that your money will follow you wherever you go or, at the very least, remain in your account until you reach a certain age. Some employers provide a “matching” program that will match whatever you put in. This is like free money, you should always contribute the maximum that they will match, if at all possible.
Whether you’re in your early 20’s or late 40’s, planning for retirement needs to begin now. If you don’t want to spend the rest of your life working, you’ll need a nest egg that will support you in the manner to which you’ve become accustomed. If you don’t know how to start saving for your retirement, talk to a professional; he or she can give you the proper guidance.
See Also:
- How To Develop Winning Money Management Skills
- Annuities for Retirement
- Financial Planning is Essential for Survival
- Understanding your Retirement Needs
- Living Your Dreams: Five Benefits to Preparing for Retirement Now
- Saving tips for seniors – Making mobility problems more affordable
- The Pros and Cons of an Early Retirement
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