Retirement can be an exciting period in your life, but an overwhelming one at the same time. If you have not properly prepared for what to expect, you may not have what it takes to be financially strong during a time of your life that you are supposed to be enjoying. Before you jump in head first, learn the top five ways to prepare for retirement. The key? Start early in order to ensure that you’re ready when you finally take on this endeavor.
Figure Out your Needs Now
For those individuals who are in their 20s, 30s, and 40s, the first step is to figure out how much you will need in retirement. This may feel like a daunting task, since many of us are in a place of flux with education, jobs or perhaps just beginning one’s career path. Here is a tip: save at least 80 percent of your yearly salary, per year of retirement. For example, if you make $60,00 per year, you will need at least $48,000 per year to live while you are retired. If you live to the average age of 92 years of age, and retire at 65, you can see that this is a large amount of money that you’ll need to save. Pay attention to all the details as you plan to retire. While you cannot retire on Social Security, it is important to know how much money you will receive when you retire so you can create a savings retirement plan. To estimate how much you will receive in Social Security, you can use the Social Security Quick Calculator. For those 55 and older, you can receive full social security benefits at the age of 67. Those born before 1960, your retirement age for full social security benefits can be found here.
Find Out your Benefits at Work
Many employers provide a 401(k) program, which is meant to save money for retirement. It is very important to understand if your employer offers, “401(k) matching.” How this works: as an employee you can choose the percentage of your income or dollar amount, that you would like to contribute to your 401(k) for the year. Your employers will match you by adding money to your 401(k) based on the amount you invested. Contribute the maximum amount that is allowed every year, or at the least, the maximum amount that your employer will match—you can consider it free money towards your retirement! Not every company offers 401(k) matching and the amount a company matches can vary significantly. Bloomberg ranks the Top 50 Employers 401(k) Plans every year. Don’t be afraid to ask about this important benefit when considering a new job!
Contribute to an Individual Retirement Account
If your job does not offer a 401(k) or you would like to contribute more toward retirement, you can open an Independent Retirement Account (IRA) at most banks or major financial institution. Many traditional IRAs, offer the advantage of investing in stocks, mutual funds, cds and other financial products to grow your retirement money. If you don’t feel comfortable managing your investments directly, companies like Betterment and Wealthfront offer to manage your 401(k) for you at a lower costs than hiring a financial advisor. Wealthfront offers to manage your first $10,000 for FREE! This is a great way to get started. Every year, the amount that Americans are able to contribute to their IRA account goes up. For the 2015 tax year, the maximum amount was $5,500 for people ages 50 and younger and $6,500 for those over 50. Remember, even if you cannot contribute the maximum amount, every dollar counts; contribute your personal maximum amount each year to let the savings add up.
Get Out of Debt
The last thing you want to do in retirement is have debts to pay. This includes credit cards, installment loans, and your mortgage. Try to pay off as much as possible while still saving money for retirement. The earlier you create a plan in life, the easier it will be to reach your goals. The last thing you want to do is stress about paying off large amounts during the last five years that you work. Start early so that your debts are paid down and those last few years can be focused on ensuring that you have enough money saved for retirement. This requires you to start now—if you are paying only the minimum on credit card payments or even installment loan payments, try to build on that every year, so that your debts get paid off early enough for you to use that money and set it aside for retirement.
Determine your Insurance Needs
During your younger years, it’s common to have large amounts of insurance to ensure that you are covered in the face of tragedy. As you get older and have more assets to your name, your need for such hefty insurance will decrease. Assets are an accumulation of the things you own- everything from stocks, real- estate, vehicles, the list goes on. When you are younger, all these things are considered liabilities because, let’s face it, you’re in-experienced. Take the time to reassess your needs, and lower or cancel any insurance that you no longer need. This can save you a significant amount of money down the road, enabling your retirement to be more financially manageable. For example, if you have yet to accrue speeding tickets, been in a car accident, and or own your car, your car insurance bill decreases significantly. It will also decrease depending on: your occupation, if you are in the Armed Forces, and or affiliation discounts for certain organizations, amongst other reasons. Long story short- be alert!
Saving for retirement is one of the most important ways to ensure that you actually enjoy your “golden years,” without the need to work or stress about finances. Of course, some people work to keep themselves busy and to bring in a little extra income. Work smarter, and be mindful with how you save and allocate your funds, so that you may enjoy retirement.
