Retirement Planning

Retirement is a big chunk of your life, so it’s best to plan as early as possible. It starts by understanding how much you will need to retire, how you plan to supplement Social Security and the investing strategies you can act on today that will enable you to realize your goals for tomorrow.

How much do you need to retire?

Experts suggest basing your retirement on how much you currently spend rather than how much you currently make. That’s because it’s a completely different set of expectations if you make $50,000 and use all of it as opposed to making $50,000 and using only 70% of it. Theoretically, if you use 70% now you know you can live on 70% later. Some expenses may be different, but this is a good way to estimate for the future.

Next, multiply how much you currently spend per year by 25 so that you have an idea of how much money you’ll need assuming you will live 25 years past your retirement age. This is a fair estimate given current life expectancies.

How much will Social Security pay?

Use the calculator on the official website of Social Security to figure out how much you’ll be getting yearly. Add this amount to any other money you’ll be receiving in retirement and then subtract the sum from how much you’ll need on a yearly basis. That might be Social Security and a small pension, which, no matter how small, is always a #HumbleBrag.

If Social Security is giving you $30,000 and your pension is $10,000, add it together and subtract it from how much you spend yearly. Then multiply that number by 25. If you spend $50,000, you should have gotten $250,000 using the aforementioned figures. That’s how much you’ll need in your retirement portfolio.

Are you a saver or an investor?

Charles Schwab conducted a study that showed that 64 percent of people think of themselves as savers rather than investors. Given this, it should come as no surprise that Schwab discovered that 54 percent of 401(K) account holders put their spare money into savings accounts rather than into other forms of investment accounts.

If you consider yourself to be a saver, and your habits match this, then you might want to consider moving your mindset (and your money) from saving to investing. Historically, investment has a greater return than savings. In fact, your savings may even be worthless in the future because of inflation, the process of currency’s buying power decreasing while prices go up.

How can you increase savings?

Schwab also discovered that many people take a passive role when it comes to investing. A third of the study’s participants said they do not increase their contribution levels over time, instead opting for a “set it and forget it” approach that does not necessarily scale as one’s career advances.

Change your retirement benefits and health insurance

If you’re lucky enough to have a company that’s willing to provide benefits such as health insurance after your retirement, try negotiating what you’ll pay for your health insurance, what it’ll cover, and whether or not it will include dental and vision care as well. To do this, talk to your HR department. See what kind of changes you can make to your pension if you get one.

Hold off on Social Security

Technically, you can start collecting social security at 62, but see if you can delay until you reach full retirement age, which is around 66 or 67, depending on when you were born, do so. In fact, hold off as long as you can. You get capped at 70, and the longer you wait the more you’ll get on a monthly basis. If you started collecting Social Security but want to hold off so that your monthly amount gets bigger, you can pay back what you’ve gotten and start waiting again.

Your local Social Security Administration office is available to answer any questions. Whatever your decision, though, reach out to Social Security during the three months before your 65th birthday so that your Medicare benefits don’t get delayed and get more expensive.

Put some retirement savings into a Roth IRA

When it comes to 401(k)s and traditional IRAs, you have to wait until 59 1/2 to start making withdrawals. You can keep waiting until you are 70 1/2, which you may want to do so that your investments keep growing. Doing so may mean that your withdrawals will place you in a higher tax bracket, and that’s exactly why you should consider a Roth IRA.

With a Roth IRA, you pay taxes on your contributions when you make them as opposed to when you make your withdrawals. You can also keep your money in a Roth IRA past your 70th birthday. If this is advantageous for you, then you can do a Roth IRA conversion. That’s when you convert your 401(K) into a Roth IRA. You’ll have to pay taxes on the conversion, but you won’t have to pay taxes on the funds as they increase over time or when you make your withdrawals.

How to diversify a 401(k)

Too many people fail to take advantage of their ability to diversify their 401(k). This is known as “rebalancing.” One way to figure out how much you should keep in stocks is taking your age and subtracting it from 110 to get the percentage of your portfolio that should be in stocks. So, if you’re 40, that’s 70 percent.

What tools are available?

Online calculators are a useful way to start thinking about the future.

Social Security income calculators

Knowing how much Social Security you’ll be collecting is important because it’s a program that was literally designed to drastically improve the quality of life for retired people. Figuring out how much money you’ll be getting yearly the longer you put off collecting your payments may inspire you to make lifestyle changes to improve your health and save you money.

Like saving money, the best time to start a healthy lifestyle is when you’re young. Knowing that you’ll be getting an extra $5,000 a year by collecting your Social Security later is just icing on the cake.

Retirement income calculator

Use a retirement calculator to figure out how much to put aside for your retirement every year so that you can hit your target. With good budgeting, you can achieve your goal or at least know how short you’ll fall so that you can adjust accordingly. The earlier you start, the more time you’ll have to experiment.

Who knows, you may learn that you love reading about real estate so much that you start a self-directed IRA to invest in various properties. Investing doesn’t have to be a chore. it can be fun and exciting, and finding out how much you need to set aside every year may be the motivation you need to discover something new about yourself.

Do keep in mind, however, that you may not be able to hold retirement off for as long as you like, that you may need to collect Social Security early, and that you may have periods of unemployment during your career. As a result, you should also look into worst-case scenarios for your retirement as well. Being prepared means preparing for the worst, too.

401(k) income calculator

A 401(k) calculator will figure out how much you should contribute to your retirement plan every year. You’ll also be able to appreciate just how important making contributions is if your office has an employee match program. Generally speaking, you should make the maximum contribution that your company will match before focusing on anything else, including paying off high-interest debt.

Additionally, a 401(k) calculator will drive home the point that, if you can, a Roth IRA is a great way to augment your savings. After all, 401(K)s do have a yearly limit, but if you have even more money to save then you should.

What do you do if you’re near retirement?

For starters, if you have a home that’s too big for your needs, it might be time to move out. Sure, you may have paid off your mortgage and may like your house, but taking care of a home may take too much effort and you may also need a house that’s easier to get around. Getting a smaller home may give you more money to invest into your retirement fund or just free up some cash.

Moving into smaller accommodations will also lower your monthly expenses overall, which you should be figuring out how to do regardless. Selling your home may also be a way to put a down payment on a new place. Conversely, if your mortgage isn’t already paid off and you decide to stay in your home then you may consider refinancing your mortgage so that your monthly payments are more manageable. You could, for example, get another 30-year term mortgage, which will be much easier to pay off.

You should be paying off as much of your debt as possible while avoiding new debts. And definitely don’t touch your home equity. The closer you get to retirement the more cautious you should be. That’s why it’s a good idea to start moving some of your retirement savings out of the stock market and into more stable investments. A good time to start is halfway through your career. This way if the stock market goes belly up you’ll have some of your cash in investment-grade bonds or annuities.

You can also invest in life cycle mutual funds, which adjust for risk based on your age. Or you can handle these decisions yourself by investing in the sort of security that will lower your risk exposure. Just make sure to keep an eye on your investment so that it’s appropriate for your situation.

When planning ahead you want to be sure that you’ll be able to execute your plans. Many people intend to work past the minimum retirement age but discover they’re unable to do so when that age actually comes.

Bottom line

It’s never too early to start planning for your retirement. Luckily, planning for your retirement isn’t limited to saving. Honing your budgeting skills, making lifestyle changes, and just contemplating the future are all ways to be more prepared. This will improve not only your future but your present as well.

Pam Velazquez is Senior Marketing Manager at

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