You work hard your whole life and save diligently in order to enjoy your retirement. Sounds simple right? Well, the reality is preparing for retirement can be much more complicated and stressful for some people. In fact, a recent survey found that 80 percent of Americans have expressed anxiety that they have not saved enough to be financially independent in retirement.1
If you’re concerned about your retirement savings, continue reading below as we have highlighted six things to start doing differently right now.
Change #1: Better Understand Your Retirement Needs
The average person spends about 20 years in retirement. This is a significant amount of time in which to be financially independent, so it is extremely important to plan accordingly for retirement. The Department of Labor recommends that retirees prepare to live on 70 to 90 percent of their pre-retirement income in order to maintain their usual standard of living.2 Because of this, it is essential to start planning for retirement as early as possible. If you are living comfortably now, ask yourself if you have saved enough to continue living this way once you have retired, when you don't have your typical continuous stream of income.
Change #2: Contribute to a 401(k)
In 2018, approximately 30 percent of private industry workers had access to a defined contribution plan at their job but still did not participate.2 If your employer offers a retirement plan, such as a 401(k), seriously consider making monthly contributions. One of the biggest mistakes that tends to occur is, some employees don't take advantage of this, and younger employees find it easier to justify putting this off. But the truth of the matter is, it’s never too early to start preparing for retirement. In fact, it is beneficial to start contributing to a 401(k) as early as possible due to compound interest.
Compound interest steadily accumulates over time. This means that the earlier you start saving, the more your money has time to grow toward retirement. Also, another advantage of these accounts is, money contributed to a traditional 401(k) or IRA is tax-deferred, which makes it an appealing option for those looking to lower their tax obligation right away.
Change #3: No 401(k)? Utilize an IRA
You can put up to $6,000 a year into an IRA or $7,000 if you are 50 older.3 You’ll want to choose between a traditional IRA or a Roth IRA. The main difference between the two is the tax advantages. A traditional IRA means you’re contributing money tax-deferred to your retirement account. However, you will be required to pay takes on you withdrawals in retirement. Since the money is contributed tax-deferred, it lowers your current year’s adjustable gross income.
Alternatively, a Roth IRA means your contributions are made with after-tax dollars. So, your withdrawals will be tax free in retirement as they were taxed when you deposited the money into your account.
Putting money into an IRA is a great way to start saving for retirement as IRAs are simple and anyone can open one. To simplify the process further, consider establishing automatic deductions. Each month, a set amount of money will automatically be deposited into your IRA from your checking or savings account.
Change #4: Do Not Touch Your Retirement Savings
Another useful tip for everyone is to not withdraw money from your retirement savings early. By withdrawing from your retirement savings now, you lose valuable principal and interest that could have been income in retirement. Additionally, you may lose valuable tax benefits and pay a tax penalty for withdrawing early. If you change jobs, make sure that you leave your savings in your current retirement plan. Or you can roll them over to an IRA or your new employer’s retirement plan.
Change #5: Ask Your Employer About Pension Plans
Does your employer offer a traditional pension plan? Many companies have stopped offering them however, check with your employer to make sure. If they do, see if you’re covered. Before you change jobs, find out what will happen to your pension benefit. Also, if your spouse has a pension plan, you may be covered through theirs as well.
Change #6: Talk to Your Financial Advisor
Working with a financial advisor is one of the most impactful and beneficial things you can do for your future retirement. Financial advisors are familiar with your situation as it is one of their main responsibilities to help their client's plan for retirement. They can provide you with realistic expectations, savings goals and investment advice based on your tolerance for risk. Be open and honest in your discussions, and express your fears or anxieties regarding your future retirement.
When it comes to your retirement, it’s important that you’re knowledgeable, self-aware, confident and diligent in your planning efforts. If you are used to living a particular lifestyle and want to continue doing it once you are retired, it is extremely important to start planning ahead. And if you are unsure where to start, or are unsure if you have saved enough to retire, feel free to reach out to one of our trusted financial professional to find what works best for you and your unique situation.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.