According to the National Institute on Retirement Security, almost half of all working Americans have nothing saved for retirement.
That’s a staggering statistic, and it underscores the importance of planning for retirement sooner rather than later. If you’re one of those people who have yet to start saving for retirement, or if you’re not sure how much you need to save, these tips can help.
1. Determine how much money you’ll need in retirement.
This will vary depending on a number of factors, including your lifestyle, health, and whether you plan to retire fully or partially. A good rule of thumb is to plan on needing 70% of your current income in retirement.
Also, keep in mind that you may need more money in retirement if you plan to travel or take up new hobbies that will require additional funds. For example, if you’ve always wanted to learn to play golf, you’ll need to factor in the cost of lessons, greens fees, and equipment.
In addition, consider whether you’ll have any debts in retirement, such as a mortgage or credit card debt. If so, make sure to factor these payments into your retirement budget. As the people behind RetirementInvestments note, technologies are evolving fast, and it is important to keep up with them every step of the way. This includes the software, which is important for managing your finances.
2. Start saving now.
The sooner you start saving for retirement, the better. This is because of the power of compound interest, which basically means that the money you save today will earn interest, and then that interest will earn more interest over time. The longer you have to save, the more time your money has to grow.
For example, let’s say you start saving $200 per month for retirement at age 25. If you continue doing this until you’re 65 and earn an average annual return of 5%, you’ll have nearly $300,000 saved. But if you wait until 35 to start saving, you’ll have to save $385 per month to end up with the same amount of money.
So, if you haven’t started saving for retirement yet, now is the best time to start. If you already have a retirement account, such as a 401(k) or IRA, consider increasing your contributions. Even an extra $50 per month can make a big difference over time.
3. Invest your money wisely.
Once you start saving for retirement, it’s important to invest your money wisely. This means choosing investments that have the potential to grow over time, while still providing some degree of safety.
A good place to start is with a diversified portfolio that includes stocks, bonds, and cash. This combination can provide the potential for growth while still offering some protection against losses.
When it comes to stocks, it’s generally best to invest in a mix of large and small companies, as well as domestic and international companies. This will help to diversify your risk and potentially increase your returns.
You may also want to consider investing in mutual funds or exchange-traded funds (ETFs) that offer exposure to a wide range of investments. This can be a good way to diversify your portfolio without having to purchase individual stocks and bonds.
4. Consider working part-time in retirement.
If you’re worried about having enough money to live on in retirement, working part-time can be a good solution. This extra income can help to cover expenses, while still allowing you the flexibility to enjoy your retirement.
There are a number of ways to find part-time work, such as through temp agencies, online job boards, or even by starting your own business. And, you don’t necessarily have to work in your previous career. Many retirees find that they enjoy working in a completely different fields, such as teaching, retail, or healthcare.
Plus, working part-time can provide a number of benefits, such as staying active and social, having a sense of purpose, and earning extra money to spend on hobbies or travel. So, if you’re concerned about your finances in retirement, working part-time may be worth considering.
5. Make sure you’re prepared for health care costs.
One of the biggest expenses in retirement is health care. According to Fidelity, a 65-year-old couple retiring will need an estimated $285,000 to cover medical expenses in retirement.
This is a big number, but there are ways to prepare for it. First, if you’re still working, take advantage of your employer’s health insurance. This coverage is usually much cheaper than buying an individual policy.
Second, consider signing up for Medicare when you’re eligible. This government-sponsored health insurance program can help to cover some of your medical expenses in retirement.
Finally, you may want to purchase a long-term care insurance policy. This type of coverage can help to pay for things like in-home care or a nursing home stay.
Keep in mind that health care costs can vary depending on your location. So, it’s important to research the cost of health care in the area where you plan to retire.
6. Review your Social Security benefits.
Social Security is a government-sponsored program that provides benefits to retirees and other eligible individuals. If you’re nearing retirement, it’s a good idea to review your Social Security benefits and estimate how much you can expect to receive.
You can create a Social Security account online to get an estimate of your benefits. This estimate is based on your earnings history and the age at which you plan to retire.
Keep in mind that you can start receiving benefits as early as age 62, but your benefits will be reduced if you claim them before your full retirement age. For example, if your full retirement age is 67, and you claim benefits at 62, your benefits will be reduced by 30%.
You can also choose to delay your benefits and receive a higher monthly payment. For each year you delay claiming benefits past your full retirement age, your benefits will increase by about 8%.
So, it’s important to think carefully about when you claim your Social Security benefits. You may want to speak with a financial advisor to get help making this decision.
Retirement can be a time of uncertainty, especially when it comes to finances. But by planning ahead and taking into account the various expenses you’ll face, you can make this transition a little bit easier. We’ve outlined six tips that will help you prepare for retirement, both financially and emotionally. Follow these tips, and you’ll be on your way to a comfortable and enjoyable retirement.