When you can retire depends on when you’ll have enough money to live the lifestyle you want in retirement. If you’re entitled to Social Security benefits in retirement as a worker or spouse (or both), consider your strategy. You can start collecting Social Security benefits as early as age 62, but you’ll boost your benefits (and your spouse’s) if you wait until age 67—the “full retirement age” for those born in 1960 or after. Your monthly payment will be even higher if you wait until age 70 to claim benefits. Your current age and expected retirement age create the initial groundwork for an effective retirement strategy. The longer the time from today to retirement, the higher the level of risk that your portfolio can withstand. If you’re young and have 30-plus years until retirement, you can have the majority of your assets in riskier investments, such as stocks.
After a lifetime of work, retirement provides that idyllic vision. If you need some help creating a goal, there are online tools that can help you estimate how much you’ll need to save. And if you want more personal guidance, talking to a qualified financial professional can help. But they’re offered by public schools and certain tax-exempt organizations. You may have heard 403(b) plans referred to as tax-sheltered annuity plans or tax-deferred annuity plans.
How Much Money Should You Save for Retirement Each Year?
Unfortunately, inertia can be a powerful force, and going from not saving to saving can be daunting to most people. So much investment and financial advice are designed for people who have already begun saving and investing for the future. Below are some strategies for those looking to start the process. Let’s say you estimate your potential annual spending will be $40,000; with an additional $5,000 as a cushion, you’ll be spending about $45,000 a year in retirement. This is not an exhaustive list, as everyone’s expenses will be different, especially when you consider what kind of lifestyle you want in retirement. But you can use the above spending categories as a way to begin thinking about some of the costs that will need to be covered in retirement.
If you’ve done everything right so far, that summit is still in plain view; you’ve followed the most direct and least difficult path, and all you need to do is continue on in the same direction. Read more about 403b vs 401k here. If, however, your savings aren’t where they should be, it’s as if you’ve wandered in the wrong direction—you’ll need to recalibrate and start climbing in order to reach the summit. Small amounts of money can really add up over time when it’s invested wisely, so understanding how you’re spending your money today can help you develop a retirement savings plan. The investment options in workplace retirement plans can be somewhat limited, but pay special attention to the expense ratios for any funds you’re considering.
Keep Things in Perspective Through Good Times and Bad
To get a more personalized account, contact a fee-only certified financial planner, and make sure they put your needs before their own. Bankrate’s financial advisor matching tool can help you find an advisor in your area. Your portfolio would probably have to be allocated heavily toward stocks and have risen when you need them to. If you’re unwilling to invest in stocks, you may well wind up short of your goals.
Participants should regularly review their savings progress and post-retirement needs. This additional savings will also prevent you from pulling additional funds out of your retirement in the case of an emergency.
It also assumes that you need an annual income in retirement equivalent to 55% to 80% of your pre-retirement income to live comfortably. Depending on your spending habits and medical expenses, more or less may be necessary. Aside from a traditional 401(k), Klein suggests that depending on your income level, you also look into either a Roth 401(k) or Roth IRA.
One simple way to determine your savings goals is to aim for a multiple of your current annual earnings. Figuring out how to catch up on retirement savings might be challenging, but it’s an important step for your future. While retirement is a lifetime goal for many people, some arrive unprepared. Once you begin to make changes and start saving, you may be surprised by how quickly your retirement funds add up. You may be itching for a career change, or might find yourself settling into a more senior role with a higher salary.
Consider downsizing to reduce mortgage and property tax costs. Smaller homes also mean lower costs for utilities and insurance.
