Preparing for retirement is such an essential endeavor for anyone. In America, only 50% of people calculate how much money they should save for retirement, and in 2020, only a quarter of all workers in the private sector with access to a 401(k) plan actually contributed.
Retirement marks a transcendental moment in a person’s life and a major change that affects critical aspects, both personal and social. Life is no longer organized around work but around free time, so very few know how to deal with it.
If you want to successfully prepare for that special moment, here are nine ways you can do it based on one essential premise: The key is saving!
1. Start saving, keep saving
If you started saving already, whether for retirement or pursuing another objective, keep doing it. Saving is a compensatory habit. If you’re not saving, the time has come to start doing so.
You can start with little, if necessary, and try to gradually increase that amount every month. The sooner you start, the longer your money will have the chance to grow, so you must make saving for retirement a priority. You should devise a plan to stick to and set objectives —it’s never too early or too late to start saving.
2. Know your retirement needs
Retirement is not cheap. According to experts, you will need between 70% and 90% of your pre-retirement income to keep up with your lifestyle when you retire. So, it’s time to be accountable for your financial future. The key to a secure retirement is planning.
3. Contribute to your employer’s savings plan
Sign up and contribute all you can to your employer’s savings plan for retirement, such as the famous 401(k). These plans provide lower taxes, and the automatic deductions will make it way simpler for you. With time, compound interest and taxes deferred will make a lot of difference in the amount you manage to gather.
If your employer offers a plan, find out everything about it: How much you would have to contribute to secure the amount you need based on your objectives? How long would you have to stay in the plan to get the money? These questions are essential.
4. Learn about your pension plan employer
As said, if your employer offers a traditional pension plan, find about everything about the coverage and how it works. You can request an individual benefit statement to determine how much the benefits are worth. And if you change jobs, before starting to work with another employer, you should determine what will happen to your pension benefits, including those you could keep from a previous employer and the benefits from your spouse’s plan.
5. Consider basic investment principles
How much you save is certainly as important as how much you save. In this regard, the kind of investments you’ve made and inflation are key elements that affect this equation. So, it’s best to learn how much of your savings plan is dedicated to retirement, and educate yourself on your investment options plan and ask questions.
A basic rule is not to keep all your eggs in one basket, which means diversifying your investments to reduce risk and improve return. Your investment mix could change in time depending on several factors, including your age, goals and financial conditions.
6. Don’t touch your retirement savings
Withdrawing your retirement savings would be like shooting yourself in the foot: You will lose all the accrued money, and you may lose tax benefits and possibly incur withdrawal penalties. If you find a new job, leave your savings invested in your current retirement plan or roll them over to an IRA.
7. Ask your employer to start a plan
You can suggest your employer a retirement plan if it doesn’t have one. You and your employer have several savings plan options available, and it’s possible that your company can start with a basic one, which, in every case, is a good start.
8. Invest money in an Individual Retirement Account (IRA)
You can deposit up to $6,000 in an Individual Retirement Account (IRA) every year; you can contribute more, even if you are 50 years old or older. You can also begin with a lot less, and IRAs also offer tax advantages.There are two possibilities when you open an IRA: traditional or Roth IRA. Depending on which one you choose, your contributions and withdrawals will have a specific tax treatment. Further, the after-tax value when you withdraw your money will rely on inflation and the type of IRA.
IRAs will help you save money. You can set it in such a way that a sum is deducted automatically from your checking or savings account, and that sum is deposited in the IRA.