Save Up for Retirement
How To Save Up For Retirement – 7 Steps to a Secure Retirement
For many individuals, retirement means switching to a life style that is more relaxed, and having more time to do all of the things you couldn’t do before. Some like to travel, take up hobbies, and take part in recreational activities. For many others though, it’s a time of worry and apprehension because they didn’t save up for retirement the way they should have.
The pandemic created even more problems when many, without jobs, had to dip into retirement money to support their family. A recent study by the Employee Benefit Research Institute revealed that about 54% of American workers have less than $25,000 saved for retirement. What seems bizarre, is that about one third of that group is of the opinion that will be enough for a comfortable retirement. There’s more than 3 reasons to save for retirement.
- Does that seem realistic?
- What can be expected from social security?
- Are you able to afford long term care?
- What do you do if you’re barely making ends meet now?
As long as you’re still able to work and earn income, you can still plan for your retirement. The only thing though, you’ll need to be smart with your money and pay close attention to how it’s used, save some, and be careful where you are holding it.
The following are 7 steps that you can take to help you save up for retirement and get you in a position for a better financially secure retirement.
1. How much do you need for a comfortable retirement?
This is called the magic question for a good reason. The question is a very personal one and varies from person to person. It depends on your daily needs and wants, and your general health. Some items, such as commuting costs to a job, would be eliminated, as would clothing and upkeep.
One of the important steps in retirement planning is to get a good handle on your day to day expenses. You need to take into account, rent or mortgage payment, utilities, insurance, taxes, prescriptions, and groceries. You may have a few more than those listed here.
You also need to calculate some discretionary expenses such as family gifts, entertainment, and travel. Depending on the age of the family car, repairs and insurance should be considered too.
One of the key expenses that is sure to rise, is medical care. Our bodies are like an old car, the older it gets, the more parts that wear out. When you were employed, your employer may have provided medical insurance, but now, you’ll have to buy your own.
Even if you’re old enough to have Medicare, you’ll still need a supplemental policy because Medicare doesn’t pay for all expenses. As we get older, the number and type of medications tend to increase, and some of them are very expensive, even with a prescription plan. Make sure you have a good medical plan because out of pocket expenses can decimate your savings.
2. How much money should I save up for retirement?
The ideal amount to put in retirement savings is 10% to 15% of your gross income, but for many American workers, it’s a little hard to do. Those who are fortunate enough to be able to participate in a company 401(k) where the employer matches 3%, should take advantage of it. In any event, start with a smaller amount and build it up.
Some ask, when should you start to save for retirement? The simple answer is, start as early as you possibly can. Start with your first job! If you can start to save up for retirement then, you’ll have a nice sum available when you do retire.
For those who don’t have a company sponsored retirement plan, you should open an IRA where you can set up an automatic contribution from your checking account. You can schedule it when your paycheck is deposited to the account. Again, start small if you have to, but do start. It’s never too late to save for your retirement.
3. You may need to cut some expenses
It’s not unusual to feel the pinch after you start saving for retirement. In that case, you need to review your expenses again and see where you can make some changes. First thing to do, if you don’t already have one, is to create a workable budget. By doing this, you’ll be able to see where the money is going.
Keep track of everything spent, by cash and credit card, so you can control your spending. Don’t overlook the small things either, they add up quickly. Expensive coffee everyday or eating out, can break a budget.
4. Know how your retirement funds are invested
It’s your retirement money, so you should have a working knowledge as to where and how your money is invested. Don’t let any fund manager or 401(k) administrator tell you “don’t worry about it”. If you’re uncomfortable looking at it by yourself, then by all means, contact a good financial planner and let him review it.
I’ve found over the years, that mutual funds and exchange traded funds (ETF’s) have done the best for me. I calculated my risk tolerance and reviewed every fund in my portfolio to make sure we were on the same page. Quite often, some employer sponsored plans only offer you a choice of 5 or 6 different funds. Watch those closely.
If you have a self directed IRA, you have a say in where you want the account invested. Make sure it’s diversified (several different types of investments). It’s not a good idea to put the entire account balance in one investment. If you work with a financial planner, he won’t let that happen.
Timing is everything with this decision. The financial impact can be rather severe and must be considered when you save for a long retirement. If you take it at age 62, the amount you receive will be 25% less than the amount at your full retirement age. If you wait until age 70, you’ll receive 32% more than if you took it at your normal retirement age.
When you take it, however, depends on your personal financial situation, and only you can determine that. If you plan to keep working past your normal retirement age, or if you don’t need that extra money right away, taking it at age 70 might be a good idea.
6. Deciding on your retirement date
If possible, delaying your retirement can be a wise move. You’ll be able to save more for retirement increasing your nest egg. If you’re able to delay taking social security until you reach the age of 70, you’ll get a much higher monthly benefit, as compared to early or your normal retirement age.
Many retirees take a part time job and by doing so, don’t need to draw as much out of their retirement money. Working part time also helps you to ease into retirement by giving you more free time to do some of the things you enjoy doing.
7. Retire debt free
If you’ve been living in your home, we recommend deciding on your retirement date to coincide with the date you payoff your mortgage. You don’t want to be paying on a mortgage using your retirement savings.
Some people don’t want to be living in their home after they retire. Some of the reasons for this are moving to be close to family members, downsizing, moving to a different area or state in order to lower expenses, and moving to a retirement community. Whatever the reason, each is very important, and needs to be considered when you save up for retirement.