Most people look forward to retirement – no more 9 to 5 daily grind, no more rush hour; time to volunteer, travel, play with the grandkids, and enjoy new hobbies.
Our life span has expanded considerably, and people are living longer, more active lives – the United States Department of Labor says that the average American is retired for 20 years.
Sounds great, but you might be wondering if it’s possible in today’s economy. Well, we have good news: it is!
It requires careful planning, of course, so here are a few tips to get you started.
Start saving and keep saving
If you’re already saving for retirement, don’t stop! If you’re not saving, now is the time to start. Don’t worry if you have to start small – with money, some is always better than none. Save more when you can, and remember: saving is a habit.
Know your retirement needs
Retirement is expensive – experts estimate you’ll need at least 70% of your pre-retirement income if you want to maintain your current standard of living when you retire.
Contribute to your employer’s retirement savings plan
If your employer offers retirement savings plans like a 401(k), sign up and consider contributing the maximum, especially if your company matches. In traditional 401(k) plans, this will actually lower your taxes.
Learn about your employer’s pension plan
Pensions are less common for younger generations, but it’s still worth considering. Ask if your employer offers a pension plan and, if so, how it works and if you’re covered.
Side note: you may be entitled to benefits from your spouse’s pension plan, so consider that as well.
Find out about your Social Security benefits.
Social Security benefits are, on average, 40% of what you earned before retirement. (Try estimating your benefit with this retirement estimator – or log into your individual account.)
Ask your employer to start a plan
If your employer doesn’t offer a retirement plan, suggest that they start one. There are several options available, including very simplified plans that would help both you and your employer.
Put money into an Individual Retirement Account (IRA)
There are two IRA options: a traditional IRA or a Roth IRA. They are an easy way to save, as you can set it up so your contribution is automatically deducted from your checking/saving accounts or your paycheck and deposited in the IRA. If you are covered by a retirement plan at work, be aware of the income limitations before contributing to either. Also, don’t forget about spousal IRAs! Holdfast recommends deductible IRAs and Roth IRAs, but non-deductible IRAs require a further conversation.
Consider basic investment principles
How you save is as important as how much you save. As they say: don’t put all your eggs in one basket. Diversify by putting your savings in different types of investment to reduce risk and improve return.
Don’t touch your retirement savings
If you withdraw retirement savings early, you’ll lose principal, interest, and tax benefits – and will probably have to pay withdrawal penalties. If you change jobs, see if you can keep your savings invested in your current retirement plan; if not, roll them over to an IRA or your new employer’s plan.
These tips will point you in the right direction, but each suggestion is far more complicated than we can cover in this blog – you need more information. There are, for example, federal government employee retirement plans, employee stock options, 403(B) plans, and more that we didn’t cover.
Talk to your employer, your bank, your coworkers, your friends, your family, or a financial adviser. Ask questions until you understand the answers. Get practical advice and act now. Financial security and knowledge go hand in hand.
For a deeper look into retirement planning with a seasoned professional, contact Holdfast Wealth today. We want to help you enjoy your retirement.