What to Know About Saving for Retirement
Some people cannot wait to retire. Do you think that you are prepared? Getting ready for retirement means putting sufficient money aside so that you can continue to live comfortably. On average, people live 20 years after retiring. You want those years to be stress free and relaxing, so it is good to know about saving for retirement.
About half of Americans do not save enough or at all for retirement. That is a pretty high number. Many Americans are unfortunately living paycheck to paycheck.
Saving for retirement does not have to be scary or overwhelming. Of course, it is best to start early, but it is never too late to get cracking on saving for your retirement.
Let’s take a look at a few of your options when it comes to saving for retirement.
How to Save for Retirement
Most people retire around the age of 65. As we mentioned, the earlier you start saving, the better. The numbers are in your favor if you start saving for your retirement in your early 20s.
Compound interest will work in your favor. A 10 year advantage in savings can double your retirement money. The key to successful retirement savings is to be consistent in your deposits. Over time, it becomes a habit and part of your life.
Here are the most common ways to save for retirement in the United States. Your work and financial conditions will determine which is best for you.
Chances are you have access to a 401(k) retirement savings plan if you work for a for-profit company. A set amount is deducted from your paycheck and set aside for you by your employer. This amount accrues over the years and you do not have to pay taxes on this amount until you eventually take the money out.
This is an easy way to save for retirement because the money gets deducted straight at the source (your paycheck) so you do not have to worry about it.
Some employers match the amount or deposit a percentage of the amount that you put in as well. Check with your employer if they offer 401(k)s and what the benefits are. You may transfer your 401(k) if you switch jobs. Make sure you have all the details when transferring (rolling) your savings from one employer to the next.
An individual retirement account (IRA) is a savings plan that you set up yourself if you do not have access to a 401(k). This account is typically set up with a financial institution and is designed specifically for retirement. Unlike a regular savings account, your contributions to your IRA are tax sheltered and you get tax benefits by contributing to this type of account.
Many types of IRAs exist and your work situation will determine which is best for you. Self-employed or own a small business? SEP IRA may be what is best for you.
Saving accounts can be set up for a variety of reasons. You may set up a savings account with a specific goal in mind, like the purchase of a house, for example. You can also set up a savings account for your retirement plans.
Regular saving accounts typically do not offer the tax exemptions that IRAs do. Shop with different financial institutions because the fees and conditions vary for savings accounts.
How Much Should You Save?
There is no magic number. The easiest answer to this question is as much as you comfortably can. No amount is too small. Live within your means and put aside whatever amount you can afford. Revise your savings plan as your financial situation changes.
Ask yourself these simple questions to determine what amount would be a good amount for you:
- What age do I want to retire?
- Will my partner retire at the same time?
- How do I want to live when I retire? (Be sure to factor in activities such as traveling, for example.)
- How long do I want the money to last?
Most Americans will need approximately 80% of their regular working salary to maintain their lifestyle and live comfortably upon retiring.
You can get advice or help from a financial adviser if you want to learn more about saving for your retirement or investments. Remember to check in regularly (about once a year) to fine-tune your savings and investments to make sure that you will meet all of your goals.