Are you prepared for retirement?
While the question seems almost irrelevant when you’re young, you don’t want to find yourself out of money at an older age. The U.S. Government Accountability Office (GAO) found that 29% of American households age 55 and over have no retirement savings or benefit plans. With uncertainty around the future of Social Security, no matter your age, you need to start planning for retirement now.
Retirement Funding Basics
Start Saving for Retirement Now
You’re never too young (or too old) to save for retirement. The earlier you start saving the more money you’ll have available. If savings are spread out over 40 years, the process will be easy, but if you only save for 10 or 20 years you will need to play catch up so your savings strategy will need to be more aggressive.
Think about your retirement savings as a necessary cost – you’re buying the ability to live life without needing to work in your older age. Make saving a priority every month by paying your future self first.
Figure out how much to save by determining the number of years until you plan to retire. Look at your budget numbers and come up with an estimate of how much money you’ll need to cover life without a steady income. Break this down into a monthly or annual savings goal, and keep revising it over the years as your situation changes.
Savings Account, 401k or an IRA
Besides a typical savings account, you’ll have two main options for retirement plans, an employer-sponsored plan – typically a 401k or 403b – or an individual retirement account (IRA). If you have a plan at your workplace, see if your employer matches your contributions to bring in what is essentially free money.
The money you contribute to a retirement plan is pre-tax, which means you won’t pay any taxes on that money now, and will only pay income tax in the future when you withdraw it at retirement. However, you will pay a penalty if you remove your money early.
How To Contribute To Your Retirement Accounts
With an individual savings account, you can save as much as you want, but an IRA has limits on how much you can contribute annually. According to the IRS, you cannot contribute more than $5,500 to an IRA if you are under the age of 50, $6,500 if you’re 50 or older. The annual limit for an employer-sponsored 401(k) on the other hand, is $18,500 for 2018.
Well, If you have been ignorant of your 401(k) so far, Blooom can help you gain control. Blooom is an SEC-registered venture advisory firm, which optimizes and monitors your 401(k). It gives you the first checkup for free where it will give you an insight into your account like how stocks and bonds are balanced against each other, what extra charges you could get rid off and other stuff.
You don’t have to delve into the intricacies of investing, just leave your 401(k) affairs to Bloom and it will align your investments according to the age you wish to retire at.
Planning A Retirement Savings Budget – How to Start
How much money will you need to live in your retirement years? To determine that, start with what you spend now. A good rule of thumb is to anticipate needing about 80% of your income before retirement to live your current lifestyle.
Can you pay off any debts before retirement? What do you spend on groceries every month? How much is your rent or mortgage? What about utilities and other monthly expenses?
Set savings goals that will help you build the retirement fund you need.
Consider Your Retirement Plans and Dreams
The money needed for retirement is based on your needs and desires. How do you plan to spend your retirement years? Do you dream of traveling or are you looking forward to having time to spend pursuing a favorite hobby? Do you plan to downsize?
You can’t give up your necessities during retirement but you can make changes that will be more cost-effective. How much could you reduce your expenses while still living comfortably?
If you hope to travel the world, you’ll need to be able to pay for it. Your vision will probably change over the years, but how aggressive you need to be with your retirement fund will depend a lot on what you expect.
Your retirement savings plan should be based on your unique situation. Take control of your future and start planning for your retirement today.