One of the key goals of retirement planning is knowing how much to save for a decent retirement life.
The conventional wisdom among investment professionals is to aim to replace about 80 percent of your annual pre-retirement income to continue to live as comfortably after retirement as before retirement. For example, if your salary at work was $ 100,000 each year, you would need $ 80,000 in savings per year to keep your current financial lifestyle intact. What’s the best way to do this job?
Stay on track with these five keys to retirement savings.
Set up a comprehensive savings plan and stick to it. It should be obvious, but most Americans don’t adhere to a solid retirement planning process. According to a recent study by the National Institute On Retirement Security, 45% of American households do not have a retirement plan.
“This is a major item where the majority of ordinary investors fail,” says Ryan Kwiatkowski, director of marketing at Retirement Solutions in Naperville, Illinois. “Even people who save think they can contribute to my 401 (k) and, once they retire, they can live on that amount, plus Social Security. Will this money be enough? What will happen if the next 2008 takes place the previous year? are you retiring, or during your first year (s) of retirement? Are you going to need to save some extra money? “
This simple step in planning to achieve a goal is often overlooked. “How will you know when you reach your retirement goals if you’ve never made a plan? Kwiatkowski said.
Take advantage of employer matching. You would be shocked to learn how many Americans unwittingly turn down offers of free pension contributions from their employers through the 401 (k) or 403 (b) pension plans.
“For example, if you contribute 5% of your salary to your retirement plan offered by your employer, he agrees to match your 5% with his own money,” says Rodger Friedman, retirement planning specialist and author. “If you contribute $ 250, your employer will contribute $ 250. That’s a 100% return before the funds are even invested.
Pay yourself first. “Contribute at least 10% of your pre-tax income to your employer’s pension plan,” says Dennis McNamara, financial planner at Lighthouse Financial Advisors in Red Bank, New Jersey. “By paying you first, the money is invested and set aside for the long term goal – to be financially independent – before you ever have a chance to spend it.” Add to that your maximum 401 (k) every year you work, and you’ll be well prepared for retirement, he says.
Save like living to 100 years old. Plan to make your money last, says Ron Kloth, fund manager at Dynamic Wealth Advisors in Tempe, Arizona. “With increasing life expectancy rates, it’s important to plan for a long enough period of time so that you don’t run out of money too soon,” he says. “I use age 100 as the default number when setting up financial plans because not many people will survive that number.”
Make sure you have several baskets of money to withdraw from, he says. “Having money invested in different types of accounts (401 (k) s, traditional IRAs, Roth IRAs, and taxable accounts) will give you additional flexibility, in a tax-efficient manner.”
Know what you’ll spend in retirement, especially on healthcare. “Find out what current expenses will continue into retirement,” says Veronica Welch, owner of CWR & Partners near Providence, Rhode Island. “Make sure you don’t underestimate the impact of inflation and understand how things like rising unreimbursed health care costs will need to be met as well. “
Plus, develop a comprehensive or holistic plan that addresses key issues such as payment for long-term care. “The recent news about further Medicaid cuts could make it brutal when it comes to empowering people to take care of themselves when they are disabled,” Welch said. “Few people tackle this problem and there are ways to do it without necessarily buying insurance.”
By covering these five areas in your retirement planning campaign, you will dramatically increase your chances of having the retirement you’ve dreamed of. That should be enough of an incentive to redouble your efforts as you get closer to that first day of retirement, whether it’s a few years away, or even a few decades.