For most working people, retirement sounds great but feels impossible. With the rising costs of living and the decreasing amount of private-sector retirement support, many of us aren’t saving what we need to ensure our golden years don’t put us in the red. Here are some tips to help you get ahead of your retirement fears and years.
Save Like There Is Tomorrow
A 401(k) is one of the best ways to save for your retirement. Not only is it the only employer-sponsored retirement plan available to most of us in the workforce, but it allows you to save pre-tax dollars, usually matched by your employer by up to 4%, and managed by a financial expert. According to Investopedia, with traditional pensions becoming all but obsolete, increased pressure is on the 401(k) to do the heavy lifting for retirement. And, it can do the heavy lifting if you prioritize paying into your plan each month, up to the full amount of your employer’s 100% match.
Add to your savings plan an individual retirement account known as an IRA, and you will have two non-taxable savings plans working while you work and after you retire. Fidelity suggests these savings goals for the sum of your retirement balance:
- Save at least 1x your salary by the age of 30
- 3x your salary by 40
- 6x your salary by 50
- 8x your salary by 60
- And have 10x your salary saved up by 67
So, if you follow these goals and you make $80K annually, you will want to save $640K–$800K by the time you retire. That’s a lot of money to save up, which is why it is worth taking full advantage of employer matches and opportunities to earn interest on your pre-tax dollars.
Access Your Government Benefits
Most Americans retire around 62 to 65 years old, which is when they can start collecting Social Security benefits. With less than 11% of private sector employers offering pensions these days, it is not only important to save but to know what your government benefits are post-retirement. Social Security is one of the American government’s safety nets created to promote economic security for the nation’s people. You can start receiving your Social Security retirement benefits as early as age 62. However, you will not receive your full benefits until you reach your full retirement age. The Social Security Administration offers a calculator to help you determine when you can start receiving what percentage of your benefits. You can use this estimated amount to help you balance your post-retirement budget. Sign up here to get an accurate statement of your future Social Security benefits and current earnings history.
Prioritize Your Healthcare
After retirement, you may not have access to healthcare like you once did working full-time for an employer. Unfortunately, the age of retirement is also when you need access to health insurance the most. Because you may incur more healthcare expenses like doctor office visits, prescriptions, and hospital care, it is important to prioritize budgeting for health insurance. When you turn 65, you are eligible for Medicare; however, if you retire before the age of 65, you will need to seek private health insurance, which can be expensive. If you don’t have access to union- or employer-sponsored retiree health benefits, it’s important to adjust your budget to accommodate for the right type of health insurance to cover your medical needs.
Get Budget Wise
Post-retirement budgets should take into consideration your new lifestyle. With retirement comes sweeping changes to what used to be a nine-to-five work week. Without the expenses of daily commutes, wardrobe, and meals outside the home, your day-to-day expenses will look different, and your budget should reflect the changes. Plan your budget by taking into consideration your monthly healthcare costs, activities or travel, dining and groceries, and utility expenses. Fidelity recommends establishing a budget that is 80% of your pre-retirement monthly spending. So, if your budget before retirement was $6,000 a month, you will want to make sure your savings and benefits provide you with $4,800 a month.
A Little Work Makes a Big Difference
After retirement, you may need to earn supplemental income because you just don’t have enough saved to survive without a paycheck. This is why a little extra work will help make a big difference in your monthly budget if it comes up short. Use a part-time job as an opportunity to make up the balance while you do something that aligns with your hobbies and interests, like gardening, tutoring, or leading an exercise class. A part-time job at a place like your local nursery, grocery store, school, or community center can get you out of the house and keep you active while you earn the income you need.
Retiring does not have to feel scary. If you plan for it and budget for the right expenses, you can achieve your retirement goals. Follow these tips as a helpful guide to get you on the path to retirement success, where you’ll be in the black in your golden years.