Planning for Retirement
“Planning for retirement” may seem like one of the most daunting financial tasks we face, but it’s also one of the most important. Fewer than half of Americans have calculated how much they need to save for retirement, which can lead to some avoidable problems. Breaking down the planning into manageable steps can help.
●Define your retirement. This step is fun – what would you like to do during your retirement? Travel? Volunteer? Spend time with family? It helps to be as specific as possible. For example, “travel to three National Parks a year” is more helpful than “travel.” The more detailed your goals, the easier it will be to plan – and you’ll be more motivated!
●Evaluate your health. This is often overlooked when planning for the future, but it’s important. Taking steps to improve your health now will definitely pay off in the future. If you have chronic health issues, it will play an important role in your planning.
●Estimate your retirement needs. Experts estimate that you need between 70 – 90% of your pre-retirement income to maintain your standard of living. There are a few ways to lower this number, such as paying off debt and downsizing. However, it’s important to include a cushion for unexpected expenses (broken furnace, unexpected hospital stay) in your budget.
●Save, save, save. Does your employer offer a retirement savings plan? In 2016, almost 30% of workers with access to a 401(k) didn’t participate. Many employers offer matching funds, so not participating is the same as turning down free money. Contributing might also lower your taxes. You can contribute up to $5,500/year into an Individual Retirement Account (IRA), even more if you are over 50. IRAs also provide tax advantages. (Consult your tax advisor for details.) Setting up direct deposit into a retirement account makes saving easier, as you don’t miss money you’ve never had in your hand.
●Remember basic investment principles. The younger you start, the more time your savings has to grow. (Though it’s never too late to start saving for your retirement!) Learn about your plan’s investment options and ask questions. Diversifying your investments is more likely to reduce your risk and improve return. Consider how far away your retirement is – the more time you have, the more risks you can likely afford to take with your investments. Most importantly, don’t touch your retirement savings! In addition to losing that money in retirement, you’ll likely have to pay withdrawal penalties and lose tax benefits.
●Find out about your Social Security benefits. On average, social security benefits are equal to 40% of your pre-retirement income. Your benefit will vary based on your age when you start collecting your benefits. As a general rule, the older you are, the larger your monthly income. (You can use the retirement estimator at www.socialsecurity.gov, or call 800-772-1213.)
●Talk to experts. Talk to your employer, your bank, your union, or a financial adviser. Do your own research. As questions and make sure you understand the answers. The more information you have, the better prepared you’ll be.
●Start now! No matter what your age, there’s no better time to start your saving than today.