How To Save For Retirement

   

A lot of people don’t think about retirement for one reason or another. Some don’t want to think about getting old, potential health issues or how they will be able to afford some of the things they can afford today. In fact, only 32% of all Americans have a 401k account according to U.S. Census Bureau.

From a logical standpoint, we save for retirement because one thing that we can’t control is time. Time keeps moving and that means that we keep aging and one day we’ll have to or want to stop working, but still will need money to pay for things. Nowadays, assisted living and old-age care centers tend to provide much-needed assistance for day-to-day tasks like cooking, laundry, and housekeeping for retired people. They could be considered as an alternative home if the retired person has no one to take care of. And to spend for tomorrow, you need to save today.

Estimate Your Expenses

What kind of retirement are you looking for? What age are you thinking of retiring as well? At what age will your state pension or private pension scheme start paying? These are important questions to ask because if you want to achieve the retirement lifestyle of your dreams, you need to see how much you’ll need to fund it.

A retirement calculator, which many websites offer, can be useful for getting a very rough estimate of your monthly or yearly expenses. Though these often can’t factor in things such as mortgage or rent costs, changes in inflation, and costs for utilities/travel.

Expenses for healthcare costs or in home care services for seniors can be covered by Medicare and Medicaid, depending on your circumstances. You should check to see if these would be applicable to you and factor that into the budget.

Getting Started With Saving

If you don’t have a single dollar saved for retirement, do this: go to your bank ASAP and tell them you want to open an Individual Retirement Account (IRA). The representative there will ask you some questions and help you come up with a plan to start saving.

However, if you are still skeptical as to why you should save money then know that there are plenty of reasons why it is necessary. Since you would not have a constant income, it would be wise to keep some money saved for your future life. Who knows you might need the money for relocating to a retirement community (you can learn more about this by visiting https://55next.com/page-new/all-communities/on-top-of-the-world/). Or perhaps you could make use of the money for visiting doctors for age-related ailments.

There’s a limit on how much you can put into an IRA per year, it’s $6,000 for 2020. Some people invest the entire amount in the beginning of the year and others spread it out throughout the year.

If you have some money saved then keep going. You may have heard the saying that you should save so much that it hurts. Sure it will hurt in the beginning and you may have to make a few small adjustments, but soon it’ll become a habit and second-nature.

By contributing just a bit more than you’re comfortable with, you’ll enable your retirement accounts to grow faster. Similar to working out, your muscles don’t grow unless your put stress on them, the same goes for your savings and investing. And it’s not just about your health or medications; it’s also about how you want to spend your time after you retire. What if you want a more comfortable life for yourself, living in a 55 and older community like Starhaven Villas or another luxurious location? It may not seem like a good deal now, but it will all make sense once you reach that age and when you want to spend time with people your age.

By the way, to live your dreams you also need to make a few calculations. Hence, based on moneychimp’s calculator, if you save $1 today and every year for 30 years in a retirement fund paying typical 7% annual return, it will be worth $34,000 in 30 years. If you do the same for $10, it will be worth $300,000 in 30 years. If you do the same for $100, it will be worth $3.6 million in 30 years. Simply save more.

More Saving Now = More Relaxing Later

If you have a lot of money saved, then why are you reading this??? Just kidding. My advice to you as well as anyone who can afford to do so is to save the maximum amount per year for retirement. For 2020, you can put up to $19,500 in a 401k account. If you’re married and your spouse has a separate account, he or she can put up to $19,500 in their account too. If you still have more available to save, invest in after-tax brokerage accounts like TD Ameritrade, E-Trade, Robinhood or many others available out there.

And by the way, 401k is the standard retirement account that is offered by most companies and the best thing about this account is that many of the companies that offer it give you free money if you contribute to it! Yes, they give you free money and call it a matching contribution. For example, a company may match 6% of your salary up to the IRS limit. So let’s say your salary is $85,000, that means ($85,000 X 6% = $5,100, they will match per year.

And yet another advantage of contributing to a 401k account is your contributions are not taxed. The funds you contribute are taxed when you withdraw from them or in retirement. Your contributions also lower your taxable income so you may have less income tax due at the end of the year since you are lowering your income for tax purposes by contributing to your retirement account.

Have a Long-Term Mindset

When you save for retirement, especially in a tax-advantaged account, it’s important to understand that this money is to be used upon retirement. In other words, if you decide to withdraw from it before retirement age (59 1/2), you’ll most likely have to pay a 10% penalty. That can be a lot of money depending on how much you withdraw.

You could avoid the penalty if you are forced to withdraw because of a disability, debt for medical expenses and a few other factors.

My final thought about retirement saving is consistency above all. In other words, start, and more importantly, don’t stop! Life will continue to happen. As time goes by you may need to make adjustments to your contributions. Hopefully most of the adjustments will be to increase them. As the consistency is established, your retirement savings will become a habit and the future you will thank you!

How’s your retirement savings coming along?

  1. How much have you saved for retirement?
  2. What percentage of your income do you save per year?
  3. Do you think you’re meeting your retirement savings goals?