Retirement might seem a long way off right now. But that time when it is time to quit work for good and sit back and enjoy your golden years soon creeps up on you. So, it would be wise to start planning for retirement as soon as you can. Many people are ill-prepared for retirement. It has been estimated that 40 percent of Americans do not even know how much money they will need when they retire. If you leave planning for retirement too late, you might be unable to maintain your standard of living. Saving for your retirement is a habit you need to get into as soon as possible. So, don’t wait any longer. Read these 10 tips to help you start planning for your retirement.
1. Work Out How Much You Will Need
The first step is to calculate how much money you will need to maintain your standard of living after you have retired. If you want to live the way you live now, you will need between 70 and 90 percent of your current income. If you plan on downsizing, your retirement needs will, of course, be lower.
2. Check Your Employer’s Pension Plan
Find out if your employer’s pension plan covers you. If you are included in the scheme, ask for a personal benefit statement so that you can see how much you will be entitled to once you have retired. It would also be advisable to check if you have any funds invested in the pension plans of your previous employers, and check what pension arrangements your partner has made.
3. Calculate Your Social Security Benefits
Your social security benefit entitlement will cover you for approximately 40% of your income. This amount can vary, though. To find out what you can expect from social security when you retire, you can use the retirement benefits estimator on the Social Security Administration’s website.
4. Ask Your Employer to Start a Pension plan
If your employer does not already offer a pension plan, then it would be a good idea to ask them to consider starting one. There are several types of pension schemes that an employer can choose to operate. Employer pension plans benefit the company as well as the employees. If your employer provides an employee pension plan, they will find it easier to recruit and retain staff.
5. Start Saving Now
It is never too early to start saving for your retirement. The earlier you begin planning for your retirement, the more secure you will be in your old age. So, look at your current income and expenditure, and calculate how much you can save each month towards your retirement. You can always start with small amounts of money at first and then increase your monthly savings later. The crucial thing is to have a retirement savings plan and stick to it.
6. Make Contributions to Your Employer’s Retirement Plan
If your employer does provide a retirement pension plan, join the scheme and start making contributions. It will be much easier to save for your retirement if the money is taken at the source. An employer’s pension plan, such as a 401(k) plan, will defer taxes and accumulate compound interest. Your employer may also contribute to your pension. So, find out what your employer’s maximum contribution is, and how much you must contribute to receive the full amount from your employer.
7. Don’t “Borrow” From Your Retirement Savings
Try not to use your retirement savings as a general emergency fund. It would be better to keep your “rainy day” savings separated from your pension funds. If you draw money from your pension plans, you will lose both the principal amount of money and the accumulated future interest. There may also be penalties to pay and tax implications if you take money out of a pension plan.
8. Invest in an Individual Retirement Account (IRA)
An Individual Retirement Account (IRA) allows you to defer taxes on your pension savings. You can elect to have your savings tax-deductible with a traditional IRA. Or you can contribute to a Roth IRA, with taxed income. You can save up to $6,000 a year in an IRA, or up to $7,000 if you are aged 50 or over. There are also rollover IRAs, into which you can transfer funds from a qualifying retirement plan, such as an employer’s 401k pension plan. Contributing to IRAs is an easy and tax-efficient way to save for your retirement.
9. Manage Your Retirement Investments
How you invest your retirement savings is as important as how much you invest. So, treat your retirement plans like a portfolio of investments. Diversifying your investment across several types of pension plans will help protect you against inflation and market fluctuations. So, you must understand all the various options that are open to you. If in doubt, talk to a financial advisor.
10. Start Planning for Your Retirement Now
The average American can expect to be retired for 20 years or more. So, planning for your retirement in advance is essential. You can get advice from your bank, your union, and your employer may be able to help as well. Or you can enlist the assistance of a professional pension advisor.
To sum up, if you want to avoid having to work through your retirement, it would be best to start planning your retirement savings now. Social security retirement benefits will only cover you for approximately 40% of your income. So, get in touch with a personal financial advisor, and start planning for your retirement now.