Are you ready for retirement? If you're feeling insecure about your financial future in your golden years, you're definitely not alone.
A 2015 study from the Employee Benefit Research Institute indicates that almost one-third of Americans have under $1,000 in retirement savings; more than 55 percent say they've got less than $25,000 socked away for their retirement. It's not difficult to see why planning for retirement can seem challenging; after all, it requires spending less in the present in the hope of creating a more comfortable future... and that future is riddled with uncertainties.
No one knows for sure how long they'll live after they retire, or how much their retirement accounts will grow, or how much the cost of living will be in the years to come.
But one thing is for certain: the key to retiring comfortably lies in starting to plan for retirement now. Time is the most significant factor when it comes to preparing for retirement, so don't wait. These seven tips from our retirement plan advisors will help you jump-start the process.
1. Start Saving for Retirement Now
No matter how old you are or what stage of your career you're in, now is the time to start saving — because when it comes to making your savings grow, every extra year counts. Why? Because of the power of compounding interest. For instance, imagine you save $100 each month starting when you're 25. At a 6 percent annual interest rate, your account will grow to more than $199,000 by the time you're 65. In contrast, if you save twice as much each month but don't start until you're 45, you'll end up with just over $92,000 in 20 years.
2. 401k Advisors Say Take Advantage of Employer Match Programs
If your employer offers a 401(k) match program and you don't take full advantage of it, you're essentially throwing money away. Don't turn down free money; contribute the maximum amount to your 401(k) program to glean every penny from this benefit program.
3. Save for Retirement, Save on Taxes
Traditional retirement plans, like 401ks, are tax-deferred. When tax day rolls around, the funds you contributed to your retirement plan aren't counted in your annual income. (Remember: You will pay taxes when you take distributions after you retire, however.)
4. Wealth Strategy: Pay Yourself First
Write retirement savings into your budget. Each time you get a paycheck, contribute a set amount to retirement. Make this a habit early on and, in time, you'll barely notice the difference.
5. Grow Your Retirement Account with Each Raise
When you get a raise at work, increase your retirement savings, too. That way, your savings will continue to grow, along with your career.
6. Retirement Investment Advisors Recommend 10 to 15 Percent
As a general rule, if you've started to save early, aim to save 10 to 15 percent of your income for retirement. If you've started saving later in life, you'll need to sock more away to catch up.
7. Financial Strategies: Align Mortgage Payoff and Retirement
Consider timing your mortgage payments so your payoff date aligns with your retirement date. This financial strategy has two benefits:
- Your monthly expenses will decrease
- You won't need as much savings to maintain your lifestyle
Remember: Don't pay off your mortgage in lieu of saving for retirement. Speak with your trusted retirement planning advisor to develop a plan that's right for you.