4 Tips to Save Enough Money for RetirementPlanning for retirement is stressful enough without the worry of being unprepared.
On average, Americans in their 60s have roughly $172,000.00 saved for retirement. However, many studies show that people believe they will need over $1,000,000.00 to feel comfortable retiring.
Planning for retirement is stressful enough without the worry of being unprepared. If you’re not sure how much you should save, or even if it’s too late, there is one easy answer: start saving now. It is never too late to begin saving for retirement, but it is also never too early! So whether you’re just entering the workforce or preparing to leave it, here are four ways to ensure you have enough money for retirement no matter your age.
1. Crunch the numbers.
Saving $1,000,000.00 is a common goal for many people looking to retire; however, it may not be suitable for your needs. In reality, the amount you should have saved by the time you retire is dependent on many more factors. How do you want to live in retirement? What are your current monthly expenses? Do you expect these expenses to increase or decrease in retirement?
Based on your answers to these questions, you can dive a little deeper into how much you may need to save. If you would like to continue to live the same standard as when you’re working, you may need to increase your retirement savings to supplement your income. But if you believe your expenses will decrease in retirement, you may be able to survive on less.
If retirement is years away, $1,000,000.00 may not be enough when considering inflation. The cost of living is on the rise, and inflation does not appear to be going down soon. What $1,000,000.00 can provide you today may not be able to provide 10, 20, even 30 years from now. With unforeseen tax legislation in coming years, inflation, lifestyle expenses, and more, it can be challenging to calculate your retirement income needs on your own. Considering consulting a financial professional to assist you and ensure you are prepared for a comfortable retirement.
2. Use tax-advantaged retirement savings accounts.
Saving for retirement has more benefits than just income in the future, and one of those has to do with taxes. Many retirement accounts come with tax advantages you can use today. If you have access to a traditional 401(k) or IRA plan through your employer, you can contribute to these accounts tax-free. This, in turn, reduces the amount of your taxable income. However, it won’t be tax-free forever. Upon taking a distribution, this money will be taxed as income. Still, if you believe you will be in a lower tax bracket during retirement than during your working years, it may be in your best interest to contribute tax-free now and pay lower taxes later. Keep in mind, because this money is contributed tax-free, when you turn 72, you will be required to withdraw this money in the form of a Required Minimum Distribution – so it won’t be tax-free forever.
Similarly, you may have the option for a Roth 401(k) or IRA. These contributions are made after-tax but grow tax-free in your account and upon distribution. While neither option is inherently better than the other, one may better suit your needs depending on your age, income, years to retirement, and more. Consult your financial professional to see which investment strategy is best suited for your needs.
3. Open a high-yield savings account.
High-yield savings accounts are not the best vehicle for retirement savings but can likely offer you more than traditional savings accounts. The yields are typically lower than investment accounts and don’t often make up for inflation; they allow for higher interest rates that may provide you with an advantage over the years. While interest rates are at extreme lows in 2021, there still may be benefits to moving your money out of a traditional savings account and into a high-yield savings account.
4. Increase retirement savings each year.
A common goal for pre-retirees is to save 15% of their gross income per year towards retirement. While this is a good benchmark, your objectives and needs, and savings for retirement may differ from others.
Depending on your current income and how much you have already saved, 15% may not be a realistic target for your current situation. Setting a goal to increase your savings every year can help you reach 15% or more in the future and grow your savings exponentially along the way. Saving more early on will allow for a greater chance of meeting your retirement goals.
Retirement planning is no small feat, and it can be difficult to tell how much money you truly need. But by implementing these four quick tips into your retirement plan, you may be able to reach your goals quicker than you expect. Enlisting a financial professional to aid in your retirement planning may be able to relieve some of the stress you feel. Between the added benefits and potential penalties related to retirement accounts, it can be overwhelming to figure out which investment vehicle is best for you. Regardless of your age, income, or retirement needs, don’t forget our most important advice: start saving now.
Contact us with any questions about your retirement needs.