You’ve probably dreamed about your perfect retirement situation. It’s fun to think about. But saving for retirement isn’t as fun. The fact is, though, saving for the retirement that you’ve always dreamed of requires strategic planning. It takes carefully saving to ensure that you can effectively fund your retirement years in order to live the comfortable lifestyle that you want. And the first step for saving for retirement is getting informed.
Here’s what you need to know about saving for retirement.
Retirement Has Changed
Retirement isn’t what it used to be; it’s changed drastically. In the past, Americans worked for the same company for their entire working lives and got a hefty pension for their loyalty. They also got to depend on Social Security benefits for much of their income. But now, company-sponsored pensions are virtually extinct, and Social Security is dishing out less and less money. It isn’t enough anymore. That means it’s up to you to plan for retirement and put money aside. Today, it’s more important than ever to save for your own retirement, because you can’t rely on your company or the government to do so for you.
The best thing you can do for your retirement is to start saving early. You should, ideally, have been saving ever since you got your first job in your early twenties. But, if you’re only just now thinking about saving for retirement, don’t delay any longer. Start saving immediately. The earlier you start planning your retirement income and start saving, the better your chances of being able to live comfortably during your retirement years. It’s never too early to start. Let the market growth benefit your savings account.
Know Your Retirement Needs
The average American will spend approximately 20 years in retirement. However, fewer than half have actually calculated how much they need to save. Retirement is expensive. Most Americans will need at least 70% of their pre-retirement income to cover their expenses and live comfortably, while low earners might need 90% or more to maintain their standard of living once they stop working.
You’ll only know how much you should be saving for retirement if you know your retirement needs. To get the best estimate, consider your budget, after tax, by tracking your expenses. Will you need $40,000 a year during retirement to cover your housing, healthcare, food, and other basic needs? $50,000? $60,000? Estimating the right number is critical to your savings strategy.
Contribute to Your Employer’s Retirement Savings Plan
Many employers offer a retirement savings plan, such as a 401K. Unfortunately, a large portion of Americans do not participate in these plans, which is a waste. If your employer offers such a plan, sign up for it and contribute as much as you can. Doing so may contribute to lower taxes, helping you save for retirement. Plus, your company may even kick in more (called a “match”), which you’ll benefit from. Think of a 401K match as a raise because that is what it is. It’s just not immediately accessible because the match goes into your 401K plan until you need it in retirement. Automatic deductions to these plans are easy to set up. Take advantage of the compound interest, any compound growth in the stock market and the tax deferrals of a 401K or similar plan.
Avoid Making Many of the Critical Mistakes
We all make mistakes, but making a critical retirement savings mistake can have long-lasting effects. In particular, make sure that you maximize your employer’s retirement savings plan match, never take a loan from your retirement account, make sure you don’t put all of your investment eggs in one basket, and don’t forget to regularly rebalance your investment portfolio. Last but not least, never cash out of your retirement plan if you’re short on cash.
Engage a Retirement Planning Consultant
Saving for retirement can be intimidating. You might not have investment knowledge or the time. You might not know much about 401Ks, IRAs, and other savings plans. You might not understand the different types of Social Security strategies you should be considering. Don’t let what you don’t know paralyze you from taking action. Engage a retirement planning consultant, and get started.