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While two-thirds of Americans surveyed by the Employee Benefits Research Institute are confident that they are financially prepared for retirement, nearly one-half of them have never tried to calculate how much money they will need for a comfortable retirement. In this article we've collected important tips for having a more financially secure retirement in 2017:
1. Know how much money you will need to retire
One of the first steps in planning for retirement is getting a handle on what your day-to-day expenses will be. Sure, you may not have the same commute expenses or need a “work wardrobe” once you’re retired, but you will still have to cover some basic expenses. An itemized budget should include fixed expenses (for example, rent or mortgage, groceries, utilities, insurance, taxes) and discretionary expenses (things like travel, going out for meals or movies, gifts).
Remember to include health care insurance cost as part of your expenses. If you plan to retire before age 65, you won’t yet be eligible for Medicare and you may not have retiree coverage from your employer. A recent study published by Fidelity Investments estimated that the average couple will need nearly $245,000 over the course of their retirement just to pay for out-of-pocket medical costs.
2. Write up a plan to save what you’ll need (and then some)
Once you have an idea of how much you’ll need to save, develop a plan that will put you on the road to saving that amount. Think about it, would you leave home to drive to an unfamiliar destination without checking a map or using GPS to show you the route?
Research tells us that the simple fact of writing your plan down will help you stick to it. And when it comes to long-term saving for retirement, you will need to stick to your plan over a lot of years. It would also be a good idea to over-save for unexpected expenses. Having a financial cushion is like having a spare tire in your trunk, just in case.
3. Start saving young (and young is a relative concept)
It’s never too early or too late to put away money for retirement. According to the 2016 Transamerica Center for Retirement Study survey, many Millennials started saving for retirement at age 22, and 72% are saving through an employer-sponsored or individual savings plan. Even if you’re part of the Baby Boomer generation—whose median household saving for retirement is a mere $147,000—you can still benefit from a few years of tax-deferred savings by opening a Traditional or Roth IRA now.
4. Have an income source other than Social Security
In September 2016, the average monthly Social Security payment was $1,239. Compare that amount with the estimated monthly budget you created as part of your retirement planning process. How close are the two numbers? This brings home the importance of having more than one source of revenue during retirement. For some people, that may be a pension or an annuity. Many are saving through an employer-sponsored 401(k) or similar retirement savings plan, including millions more who have Traditional, Roth, SIMPLE or SEP IRAs.
Also, you may want to consider filing for Social Security closer to age 70. Your monthly benefit will increase every month you delay collecting Social Security up until age 70. When you have a Traditional or Roth IRA, you can start taking withdrawals with no penalty once you reach age 59 ½. That money can be used as a bridge to carry you over until you reach age 70.
5. Invest in what you know
Your retirement savings shouldn’t be a black box that you put money into without understanding how it is invested. If you don’t understand how it is invested, how can you be certain it is working to your advantage. Often, most retirement plans make available popular investments like CDs, stocks and bonds. Then mutual funds and exchange-traded funds enter the scene. Other platforms give savers the opportunity to invest in other investments like real estate, precious metals and other alternative investments. Many of these investments are more familiar to the average retirement saver than stocks and bonds and mutual funds. They also offer the opportunity to further diversify your portfolio, a move most financial planners advocate. Learn more about the value of self-directed IRAs and how they work and start investing in what you know.
6. Prepare mentally and emotionally for retirement
If you’re one of those people who “live to work,” you’ll want to figure out what your “work” will be in retirement. Many people do find part-time jobs, a good supplemental income to extend their retirement savings. More find volunteer jobs that match up with an interest or satisfy a commitment to community service. Local animal shelters, hospitals, elementary schools, parks and civic organizations rely on volunteers to deliver much-needed services, and volunteering can add much-appreciated social connections and a sense of well-being to your life.
A bonus tip that will promote both financial security and happiness: Sign up for a FREE consultation with a trained Entrust professional today!