Have you saved insufficiently for retirement, or not saved anything at all? If so, it is important that you remedy this situation as soon as possible. Prioritize retirement savings, and make use of the five nuggets of advice below to help you on your way.
1. Set Your Goals – If you have not determined how much you will need to save for retirement, this is the first step. Think about the lifestyle that you expect to have in retirement, and the likelihood of your continued good health into old age. Remember, the 4% rule – taking 4% of your nest egg each year is a common rule of thumb designed to give you a fighting chance to you outlast your money. The AARP website has an excellent calculator that allows you to put in your basic information, as well as your current saving amount, expected Social Security income, and lifestyle choices. This allows you to run various savings and retirement scenarios, and set your goals realistically.
2. Use IRAs and 401(k)s Efficiently – Contribute as much as possible to tax-deferred vehicles such as Individual Retirement Accounts (IRAs) and 401(k) programs. This is especially important for employer-based programs that give matching contributions – in essence, this is free money to you.
If you are at least 50 years old, you also can go beyond the $5,500 yearly contribution limit to an IRA and contribute an extra $1,000 per year toward retirement.
3. Delay Retirement – Delaying your retirement and/or your initial Social Security draw can increase your Social Security benefits by up to 8% for each year delayed reaching a max 32 percent increase if taken at age 70. This can provide a substantial increase in your monthly benefits. Additionally, you will benefit from the extra years of earning a full income..If you are up to it and it fits in with your lifestyle, you can continue to work on a part-time basis and scale your work hours and wages down enough to avoid decreasing your Social Security benefits during the transition period up to your full retirement age (between ages 65 and 67). After you reach full retirement age, you can work all you want without reducing your Social Security benefits.
4. Minimize Debt – Try as much as possible to minimize spending and monitor expenses. Pay down any high interest credit card debt that you have, and avoid running balances – only charge what you can afford to pay in full at the end of each month.As you pay off any balances or installment programs, take the amount that you would have been applying toward these balances each month and deposit them in your savings. This will help you to get in a better savings routine and instill fiscal discipline.
5. Downsize Earlier – As you near retirement, you will probably be looking to downsize your house. Consider doing this earlier, and plan to look for housing deals. If you are willing to move, you can look for areas with lower costs of living and/or states with low or no taxes. You can save a significant amount on housing and living expenses that can be put directly toward retirement..However, do not get caught in a situation where you have bought your downsized home but cannot sell your current home. A new mortgage without the proceeds from your current home could be devastating.
Proper saving for retirement is a mindset – you have to remind yourself constantly that this is important, and that the sacrifices you make today will be worth it upon retirement. If you get into a solid routine of savings and tax-deferred investment, and put off retirement for several years, you can look forward to living your sunset years in whatever manner you choose.
Brad is a Registered Representative with, and Securities and Advisory Services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC. CA Insurance License #: 0B22199.
Let the free MoneyTips Retirement Planner help you calculate when you can retire without jeopardizing your lifestyle.