With all of the expenses of life such as bills and loans, it can be difficult to think about saving for retirement on top of that. Starting early can make the biggest difference and put you on the right track.
Here are a few tips to help you understand how much you need to save for retirement:
Set your target retirement age or date
Figuring out how long you plan on working and getting a steady paycheck will ultimately determine how much money you will need for retirement. The standard age for retirement is 65, but some people desire to work longer, and some people want to retire early. It’s important to evaluate your desires and goals so you are able to set your target retirement age. This is the first step towards planning out your retirement funds.
Calculate how much you will need for expenses
Retirement looks different for everyone, but it is important to calculate your expenses for retirement along with any forms of income. You will also need to take Social Security benefits and the income you would normally contribute to your retirement into account. Also think about your mortgage, utility bills, health insurance, car insurance, and any extra bills you may acquire.
Here is an example: If you earn $60,000 a year working, and contribute $12,000 per year to your retirement fund, and expect to get $14,000 annually in Social Security benefits, you will only need to withdraw $34,000 a year from your accounts to maintain your current lifestyle after you retire. Here is the math: $60,000 – $12,000 – $14,000 = $34,000. Once you calculate how much you will need to withdraw each year to maintain your lifestyle, as well as how many years post-retirement you believe you will need funds, you can do the math yourself, or use online retirement calculators to help you figure out how much you need to be saving now to support that.
Prioritize your savings plan
If you currently have access to your employer’s 401(k) plan, start utilizing it as soon as possible. To receive the full benefit, work towards contributing enough to match what your employer will contribute. In addition, an Individual Retirement Account (IRA) is also a great account to utilize as you plan for retirement. IRAs offer tax advantages and compounding interest that will help you save for retirement more effectively. A good rule of thumb is to put the maximum amount in an IRA each month and put it on auto pay. Investing is also a great way to generate another source of income that can help you contribute to your retirement fund or even help you to retire early. Researching and investing in individual stocks or investing in mutual funds is a great place to start.
If you’re behind, don’t panic!
Start by reassessing your goals and ensuring you are including every type of expense in your calculations and not forgetting about your Social Security contributions. Stay flexible to reconsidering the amount you will need for retirement and start saving more now if you are able. At least ensure you are saving enough to match what your employer contributes.
If you are on track or ahead, keep up the good work and know that it will pay off!
If you’re not sure if you are falling behind in your retirement savings, or need help prioritizing your savings plan, it doesn’t hurt to get a second opinion or work with someone to achieve your goals. Contact us today at First Community Insurance and Annuity Center to receive professional financial assistance and advice for your retirement planning and saving. You can reach us by phone at (866) 937-5533 or online. We can’t wait to hear from you and help you reach your retirement savings goals!