For many, retirement planning is overwhelming. If you’re young, it can be hard to plan for something so far in the future, and if retirement is fast approaching, you might feel overwhelmed by the options. Whatever your age, you can start saving and planning for retirement. The sooner you start, the more you’ll be able to save. It can be more challenging to save for retirement if you start later in life, although it’s not impossible.
There are a variety of retirement savings accounts to choose from and the options can be overwhelming. From 401(k)’s to Roth IRAs to noble gold IRA investment, there are many choices and you need to do your research to find the right option. Despite the challenges, planning for retirement is worth it.
Why Plan For Retirement?
How do you imagine your retirement years? For some, it’s living a relaxing life by the beach watching the sunset each evening with their favorite tropical drink in hand. For others, it’s traveling the world or moving close to family.
Everyone has their own idea of what their ideal retirement looks like. But to get there requires some planning. If you want to enjoy your retirement years to the full, it’s essential to plan ahead. Many people reach their 60s and haven’t saved enough to be able to retire. Senior citizens in this position often have to cut down on their spending and definitely won’t be able to afford to go on cruises twice a year.
If you think that you’ll be able to live off of Social Security income, think again. Social Security is made to replace only about 40% of the average salary. You can find an estimate of how much you can expect to receive once you retire on the Social Security website. But it likely won’t be enough to maintain a lifestyle of traveling or luxury.
It’s clear that planning for retirement is essential if you want to take full advantage of your golden years and be able to retire comfortably in your 60s. But how can you start planning for retirement?
How to Plan For Retirement
To start planning for retirement, you need to make an estimate of how much money you will need to retire. You don’t want to reach retirement age and not have enough to be able to retire comfortably. Of course, for every person, this number will be different. But start by looking at how much your current yearly living expenses are to determine how much your total annual expenses will be in retirement. You will probably have fewer expenses after retirement. Many retirees can live comfortably off of 80% of their income before retiring. Multiply your estimated annual expenses by 25 and the total is how much money you’ll need to be able to retire. Of course, you’ll also get income from Social Security, so you can subtract the amount you’ll receive to know how much you’ll need to save yourself.
Be realistic when making calculations. Over the years, the cost of living can go up and many things can change, so don’t underestimate how much you need to be able to retire. Think about where you want to live when you retire, if you’ll move to a smaller home, and how much the cost of living is where you plan to stay. Once you’ve determined how much money you’ll need to retire, you can start saving and investing.
On average, in the U.S. people contribute about 6% of their income towards saving and investing for retirement. How much you need to set aside depends on how old you are. If you’re young, you have a lot of time to increase your retirement fund, but if you’re getting closer to retirement age and haven’t saved much, you’ll need to put aside more money.
Retirement Saving Plans
There are a variety of different retirement plans, but two of the most common are 401(k)s and IRAs. The main difference between the two is that employers offer 401(k)s while individuals open IRAs. Here are a few things you should know about each of these plans.
IRAs: An IRA, or individual retirement account, is available to anyone that earns income and allows them to set aside money for retirement. IRAs also let you invest the money you contribute in stocks, ETFs, bonds, mutual funds, and other assets. This way your money continues to grow.
When you contribute to a traditional IRA, your contributions are from your pre-tax income, meaning you won’t pay taxes on the money until you take it out. A Roth IRA lets you contribute after-tax income, so while you don’t get a tax break now, you won’t have to pay taxes on this money in the future.
IRAs have a lower contribution limit than 401(k)s. For 2022, the limit is $6,000, and you can contribute an additional $1,000 if you’re over age 50.
401(k)s: 401(k)s are available to those who work at a company that offers one. These plans provide a fixed set of investments. Many companies will offer to “match” up to a certain amount of an employee’s contributions.
With 401(k)’s, you also have the option of a traditional or Roth 401(k). Like IRAs, traditional 402(k)s allow you to save using pre-tax earnings, while with a Roth 401(k) you contribute after-tax income.
It’s important to understand your company’s 401(k) plan, as there are differences in each employer’s plan.
Choosing the right option depends on your individual situation. If your employer offers a 401(k) match, it’s probably a good idea to contribute as much as you can to get the maximum match. This way you’ll get the full benefit of the company’s match. If your company doesn’t offer a match or you’re self-employed, you might consider contributing to an IRA or Roth IRA. You can analyze your options with a financial advisor to see what will get you the best return in the long run.
Planning for retirement can be stressful, but it’s necessary if you are looking forward to a long and enjoyable retirement. You’ll be able to save enough to retire comfortably and do the things you love if you plan ahead and make smart choices. If you haven’t started planning for retirement, review the suggestions in this article and get started.