Have you considered your life after retirement? We often imagine a life of leisure, traveling the world or visiting family- or even just staying at home focusing on hobbies. These are all great goals and sound relaxing, but there is a financial reality to be aware of for the retired years. Whatever you choose to do during retirement, be it taking up new skills or hosting parties for your other retired friends, plan now for the life you envision!
What Will Retirement Cost?
Use an online retirement calculator like this one to estimate how much you’ll need to retire. Are you on track to meet that goal? There is still time for you to make adjustments so you can live the life you’ve worked so hard for.
How Do I Save for Retirement?
When you began work you probably saved what you could for retirement, which was good. But now is the time to increase that amount. Shoot for saving 12 to 15 percent of your pay. Married couples should be saving this much of both their incomes. Be extra diligent about saving if early retirement is in your sights. Take full advantage of pre-tax opportunities such as a 401k plan at work. Make sure to contribute at least a minimum amount that would qualify for the company to match. That’s free money! Focus on your retirement and emergency savings before college savings for your children. There are countless ways to finance an education. Not so much for retirement.
How Long Could Retirement Last?
According to the Social Security Administration, more than one in four 65-year-olds will live to age 90. For a married 65-year-old-couple, one spouse has a 50/50 chance of living past 90. Plan for a longer life and a longer retirement.
How Will I Taxed?
Retirement accounts such as 401ks and IRAs are funded with pre-tax money. This means you don’t pay income tax on the money you put into these accounts. Instead, this money will be taxed when you withdraw it in retirement. To avoid having to pay a big tax bill when you’re retired, consider putting some money into after-tax investments. You can contribute after-tax money to a Roth IRA, for example, but you won’t pay taxes on the money when you take it out, thereby reducing your overall tax obligation when you’re retired. Read here for a great explanation on a Roth IRA.
Consider Delaying Social Security
The age when you start taking Social Security has a big impact on what you will receive. If you take benefits at 62, it reduces the amount you receive by 30 percent and the amount your spouse receives as a survivor by even more. If you work past the stated retirement age and delay taking benefits until 70, the annual increase in your monthly benefit is 8 percent. It is important to supplement your retirement savings so you can delay Social Security, if possible.
Skillfully plan and prepare now to live well in retirement!