No matter what your age or when you plan to retire, now is the time to begin saving for retirement or reviewing your current retirement savings. Saving becomes secondary when other demands are prioritized, such as marriage, buying a house, and/or raising children. Each month that you delay impacts the total savings you will have when you begin retirement. Concentrate on your saving goals, save more for short-terms goals, save a smaller amount for long-term goals. As the short-term goals are achieved, readjust your savings so more goes to the long-term goals.
Ways to Prepare for Retirement
Financial security in retirement does not just happen. It takes planning and commitment to save enough money to meet your needs. The following are tips to help you become more financially secure as you prepare for retirement.
Start saving and stick to your goals.
If you are already saving, whether for retirement or another goal, keep going! You know that saving is a rewarding habit. If you are not saving, now is the time to begin. Start small then add monthly or yearly increases to the amount you save. The sooner you start saving, the more time your money will have to grow. Make saving for retirement a priority by setting a goal, creating a plan, and sticking to it.
Know your retirement needs.
Experts estimate that for each year of retirement you will need about 70 percent of your preretirement income to maintain your standard of living (lower earners will need 90 percent or more). Use a retirement calculator to estimate the amount of money you need to save based on your current savings and age.
Consider basic investment principles.
Inflation and the type of investments you make play important roles in the amount you will have saved for retirement. Diversify your savings by investing in several types of accounts. Diversification helps to reduce the risk and improve the return. Learn about your plan’s investment options and ask questions.
Contribute to your employer’s retirement savings plan.
If your employer offers a retirement savings plan, such as a 401(k) plan, contribute as much as you can. This type of plan is tax deferred, which means that you will pay taxes on the amount withdrawn at retirement. Companies who offer 401(k) plans usually match your deposit up to a certain percentage. This benefit helps you to increase your savings. Over time, compound interest and tax deferrals make a significant difference in the amount you will accumulate. Commit to saving enough that you get the full amount of any matching contributions offered by your employer.
Learn about your employer’s pension plan.
If your employer has a traditional pension plan, learn about the benefits you will receive. Review your benefit statement to track the savings. Before changing jobs, find out what will happen to your pension and when you would be entitled to the benefits.
Save with an Individual Retirement Account.
You can invest up to $7000* a year into an Individual Retirement Account (abbreviated as IRA). If you are fifty or older, the limit is $8000*. When you open an IRA, you have two options: a traditional IRA or a Roth IRA. The tax treatment of your contributions and withdrawals will depend on which option you select. IRAs can provide a straightforward way to save when you set up automatic deposits from your checking or savings account. *Contribution limits for 2024.
Find out about your Social Security benefits.
Social Security pays benefits that are on average equal to about 40 percent of what you earned before retirement. You can estimate your benefit by using the Social Security Administration’s retirement estimator. For more information, visit their website or call 1-800-772-1213.
Do not touch your retirement savings.
If you withdraw your savings before retiring, you will lose principal, interest, and tax benefits, and may have to pay withdrawal penalties. If you change jobs, leave savings invested in your current retirement plan, or roll the funds over to an IRA or your new employer’s plan. Resist the urge to cash out and spend the money.
While the tips above intend to point you in the right direction, you will need more information, so read publications, talk to your employer, your bank, your union, or a financial advisor. Ask questions and make sure you understand the answers. Get practical advice and act now.
Useful Websites
- My Retirement Paycheck: This website provides a wealth of information to explore your retirement decisions. Eight aspects of your life work together to make up your retirement paycheck including work, social security, home & mortgage, retirement plans, savings & investing, debt, and fraud.
- U.S. Department of Labor: This website provides information about different types of retirement plans.
