Saving for Retirement
Dedicated saving and having a plan will help you enjoy your post-employment years.
Retirement is time for travel, grandchildren, hobbies or taking that “fun” job you always wanted. No matter what your background or profession, the common thought that runs through every prospective retiree is, “Will I have enough money to last my retirement years?”
Once the working years are over, the average American spends about 20 years in retirement. According to the Social Security Administration, a man reaching age 65 today can expect to live, on average, until age 84. A woman at 65 can expect to live until age 86. About 25 percent of 65-year-olds today will live past 90, and 10 percent past age 95. Those are a lot of years you need to save for.
The need for funds
Many people assume that expenses go down significantly in retirement. That’s not necessarily true. Inflation adds to the cost for food, utilities, property taxes and entertainment. In retirement, you’ll also have more time for travel and hobbies, which have their own expenses. Add to that probable increases in medical and health insurance costs and you soon see the need for additional funds.
Having a solid retirement nest egg doesn’t happen overnight. It takes careful planning and saving. Here are some tips to help you prepare.
Start early and don’t stop: The longer you save, the more time your money has to earn interest.
Know your retirement needs: Experts estimate you’ll need 70-90 percent of your pre-retirement income to maintain your standard of living. Online retirement savings calculators can help you figure out how much to save to reach your financial goals.
Employer savings plan: If your employer offers a retirement savings plan, sign up immediately – especially if they offer matching contributions.
Understand your employer's pension plan: Verify you’re covered and be sure to understand how it works. If you change jobs, find out what will happen to your pension.
Don't touch retirement savings: If you withdraw retirement savings early, you'll lose principal and interest, and possibly have tax consequences.
Start an Individual Retirement Account (IRA): You can put up to $5,000 a year into an IRA – more if you are 50 or older. (Note: There are two IRA options – a traditional IRA and a Roth IRA. The tax treatment of your contributions and withdrawals will depend on which option you select.)
Know your Social Security benefits: Social Security benefits are, on average, about 40 percent of your pre-retirement earnings. You can estimate your benefit under current law by using this estimator on the Social Security Administration website.
Pay down debt (mortgage, credit cards, etc.): If you have a mortgage or other loans, pay them off before retirement. The loss of payments is like an instant increase in income.
Diversify savings: "Don't put all your eggs in one basket" couldn't apply more to retirement saving. The more diverse your portfolio, the safer it is. Look for ways to spread risk among your investments.
Get help: Retirement planning can be complicated. Get assistance from a financial expert or enroll in a money management class to better understand your options.
For personal investment and tax advice for savings, rollovers (in the event of a job change) or new accounts, contact an accountant, tax advisor or personal investment consultant.