Have you started saving for retirement? While most people recognize the importance of saving for retirement, studies show that many have no idea how much money they will need in retirement, let alone how to get started. And with our schedules becoming busier each day, many people tend to put it off until they get closer to retirement age. But the earlier you start, the longer you will have to accumulate a nest egg for retirement.
Here are the six best ways to plan for retirement.
1. Have a plan
We’ve all heard that adage “if you fail to plan, you plan to fail.” Start by thinking about your retirement goals. Once you have determined your goals, you should put a written plan in place and work with a financial planner to help you achieve them.
2. Save, Save, Save
Most people feel they cannot afford to save, but the truth is they cannot afford not to save. But how much will you need to save? Although it varies based on your retirement goals, the rule of thumb is that retirees will need to replace 70-80% of their pre-retirement income. Set a savings plan by creating a budget to help determine where you can reallocate funds towards savings. Most people are surprised at the amount of money they spend on discretionary items and are often able to cut back in some areas. For example, by eliminating even seemingly small expenses, like eating out less often, you can free up cash to set aside for retirement. The key is to start saving for retirement early and not let today’s wants interfere with tomorrow’s needs.
3. Open a retirement account(s)
Long gone are the days when companies provided their employers with defined benefit plans, also known as pension plans. However, the good news is many employers do offer defined contribution plans such as a 401(k), 403(b) or 457(b), which are great ways to save for retirement. Your contributions are tax-free, and in many cases employers will match employee contributions up to a certain percentage.
4. Work with an Investment Advisor
In today’s world of “do it yourself (DIY)” many people do not feel the need to work with an investment advisor. Working with an advisor helps prevent poor investment decisions. In addition, they can help you stay on track with your long-term goals by implementing an investment strategy suitable for your needs.
5. Delay taking Social Security
Social Security (SS) is an important source of income for most people during retirement. Benefits are based on your primary insurance amount (PIA) and increase by 8% per year for each year you delay benefits up to age 70, resulting in a benefit that would be 32% higher than that at full retirement age (FRA). However, individuals can begin taking SS as early as age 62. However, if you do so, your monthly benefits are permanently reduced and will be lower than if you waited until FRA.
6. Consider out of pocket healthcare costs
Healthcare costs can be a major expense in retirement and is frequently overlooked. While government programs such as Medicare provide healthcare benefits at age 65, there are deductibles and co-payments or coinsurance costs that are not covered. By working with a certified financial advisor, you will be able to review what options are best for your long-term healthcare planning.
As you plan for retirement be sure to update your beneficiaries as needed, as well as estate planning documents such as your will, power of attorney, and medical healthcare directives. The sooner you get started with saving and planning, the more prepared you will be.
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