Planning for retirement can be daunting. It can be easy to push off your retirement savings goals when you have many current responsibilities. Yet, failing to invest in your retirement early can leave you with more to do in a shorter period. No matter what point you are at in your life, below are a few ways that you can begin investing in your retirement now.
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1. Calculate Your Retirement Needs
One of the first steps toward preparing for your retirement is determining how much money you will need. You will have to include living expenses and expenses for plans you have for retirement. When coming up with this figure, you will need to consider inflation and where you financially expect to be when you are in your late 60s.
Your overall figure should include:
- Costs associated with housing, such as rent, mortgage payments, insurance, utilities, and repairs.
- Costs for healthcare include insurance premiums, out-of-pocket expenses, and possible long-term care.
- Daily living expenses related to transportation, food, and clothing.
- Minor entertainment expenses, such as dining out and movies.
- Major entertainment expenses, such as travel.
- Life insurance or burial expenses.
The exact figure will depend on the comfort you expect in retirement, as well as your big plans. Retirees are often encouraged to save close to $2 million, or 12 times their pre-retirement salary.
2. Get Your Savings Started
Starting to save as early as possible for retirement is essential. The longer you wait, the more you will have to put away to meet your retirement goals. There are many different options that will help you get on the road to a financially secure retirement. Some of the best ways to grow your money quickly include:
- High-yield Savings Accounts: Putting some of your money in a high-yield savings account will help you grow some of your money while keeping it well protected. The return on investment is not high, but it can be a good option for those who want some safer funds.
- Roth IRA: Roth IRAs work like other retirement accounts where you can grow your money significantly over time through a portfolio. The main difference between this option and other 401(k)s is you pay taxes before the money is put in. This will be ideal for those in a high tax bracket in retirement.
- Employer 401(k) Plans: You should opt-in if your employer offers a 401(k) plan with a match. Contribute as much as you can, up to the max that they will match. This will allow you to grow your money even faster.
- Solo 401(k): For those who are self-employed, Solo 401(k)s are the perfect option. They come with tax benefits, allow for high contributions, and let you invest your money in anything permitted by the IRS.
While it is best to start your retirement planning early, things happen and this doesn’t mean you can’t retire comfortably if you’re beginning to plan later in your life. Some of the best retirement planning apps can help you formulate a plan and save you money no matter how close to retirement you are.
3. Create and Stick to a Budget
Budgets are a great way to stay on top of savings and learn to live within specific financial parameters. It will also help you determine what expenses you may have in the future and how much you will need. Always start with the most immediate needs and then work on other non-necessary budget items.
Included in your budget should be specific amounts set aside for savings. When you build these amounts into your budget, you will be more likely to stick to them. If you need some help putting it aside each month, set up automatic recurring transfers.
4. Rid Yourself of Debt
During retirement, if you have debt, it will cut into your monthly living expenses and make it harder to stay afloat. The more debt you have, the less you will save. Come up with a debt plan that will help you pay off as much of your debt as you can before retirement.
There are two primary ways to tackle debt. You can snowball it by paying off the smallest item, then roll that payment over to the next one. Or you can tackle high-interest debt first. Be sure to minimize any new debt as well.
5. Have a Health Strategy Plan
Healthcare costs are one of the highest costs you will face in retirement. While you will be eligible for Medicare later in life, it is crucial to account for co-pays and deductibles. Having a plan to address these costs will help you avoid major surprises down the road.
You should also consider any contingencies for possible long-term care. Without the right insurance, long-term care facilities can rapidly eat away at your retirement savings.
6. Assess Your Retirement Income
Once you have a budget in place and estimated savings needed for retirement, assess your retirement income. Will the proceeds from your portfolio and Social Security sustain you? Are you planning on pursuing a job or business in retirement?
If you realize that the income in your retirement will not cover your costs, it may be time to develop a new strategy. Consider adding more to your savings each month. Or you could consider some other investment options that allow for regular, passive income, like real estate investments.
Retirement should be an exciting time and not filled with worry. Being prepared will help you better enjoy your retirement, and saving is the key. Start considering your savings options now to ensure you have the retirement wealth you need to accomplish your goals in the next chapter of your life.