The Secret to Having Enough Retirement Income?
On average most of us can expect to spend 20 to 30 years of our lives in retirement. Even though that may be a shock to you, it’s statistically accurate. But the bigger shock for you personally will be if you allow your 40 working years to pass by without saving enough money to support yourself for those 20 to 30 years. The secret to having enough retirement income is to make a savings plan and follow it. For some reason, it seems like we put more time into planning our vacations than we do for retirement. Why is that? Well, maybe because we get an immediate gratification from a vacation whereas the gratification from retirement is a long way off.
Want Retirement Income? Plan A Vacation
If you plan for your retirement like your planning for a vacation you can get ahead of the retirement income speed bump.
If you retirement age, and we all do eventually, without enough retirement income, your choices are limited. You will either be forced to keep working to support yourself or change your lifestyle to live on less. And do you really want to live the rest of your life to the fullest on the money you saved during your working years if it’s not enough? The choice is yours, which will you pick? You need to make a choice as soon as possible so you can plan accordingly. If you pick the first option to keep working, you can stop reading this article and just give up. Or you can read on and learn how others accumulate enough retirement income to support themselves during their retirement years.
5 Steps To Accumulate Wealth By Retirement
Step #1 – Determine How Much, Find a Retirement Calculator
The amount of retirement income needed to retire is like a shoe size, it’s a personal thing. We wear different size shoes, we will have different income needs at retirement. A retirement calculator can help you determine the amount of money you will personally need in order to generate a stream of income at retirement. Financial planners say a good benchmark of retirement savings would be 12.5 times your current salary. To get more specific use a retirement calculator. It can give you a more customized target amount since it will be based on your personal financial needs.
To get a more accurate figure include in your calculations health care costs, home maintenance, real estate taxes, association fees, auto repairs, home and auto insurance costs and any hobbies you may have.
Step #2 – You Decide Who Gets Your Money
Achieve balance but don’t forget retirement
If you have just started your working years, you are trying to balance your career, raise a family and save for retirement. Everyone wants your money, right? Well, it’s your money so you get to determine who gets it. You determine how big of a mortgage to get. You decide how big of a car payment to have. And, you get to pick how much your retirement plan contribution will be. It is important to achieve balance, but while doing so do not forget about saving for retirement. Do not let your other financial responsibilities, cloud your retirement vision. Do not ignore one financial responsibility to over fund another. Saving 12.5 times your salary is a big financial responsibility that should not be put off.
Make contributions small, but consistent
A common financial mistake is to avoid making retirement plan contributions because the contribution you can afford is too small. Just remember that it all adds up. Small contributions are great if made consistently. If you are in your 20’s or 30’s, based on the amount of time your investments will be in the market, it’s okay to have smaller contribution amounts. The key to accumulating enough retirement money over your 40 working years is to save consistently and often.
Step #3 – Invest Extra Money
Don’t count on any other source of funds
To help you reach your goal of 12.5 times your current salary, make it an automatic financial habit to invest every bonus, raise and tax refund you get. You will need all the money you can get. You will not be able to count on social security as one of your retirement income sources. According to government statistics, social security is broke, there is not enough money in the system to support retirees in the future. It may be obsolete by the time you reach your retirement age, so do not even figure it into your calculations when you use the retirement calculator. The smart move is to save and invest as if social security will not be available, and then if it is, hip, hip hurrah.
Step #4 – Max-it
Can you pass up free money?
A common retirement planning mistake people make is to pass up free money. If your employer matches your 401(k) or 403(b) contributions, guess what, that’s free money. So why would you not want to max out your retirement plan contributions at work? On top of receiving free money, your contribution and the match money is tax-deferred. Which means you do not have to pay taxes on it until you make withdrawals on it…umm, which could be 40 years from now. Think about that, money growing in your account not getting taxed for some forty years. Then when you do retire and make withdrawals you will be in a lower tax bracket, so you save on taxes once again. Now, if your employer does not offer a retirement plan, take advantage of tax-deferred saving by opening an IRA and maxing out that contribution amount.
Step #5 – Be Prepared For The What If
Always have an alternate plan
What if you cannot accumulate 12.5 times your current salary during your working years and social security is not available? If you are a young investor you should not have a problem accumulating 12.5 times your salary if you discipline yourself to save a little bit at a time. Key word here is discipline. When you are in your twenties or thirties you have at least forty years for your money to grow, but it will only grow if you invest some.
What if you are at an age where retirement is close, and you it does not look like you will meet the 12.5 times salary projections? You will be forced to continue working until you accumulate enough retirement income. Or financial planners would suggest that you find a predictable stream of income that keeps up with inflation.
Annuities could be your answer to finding stream of income to supplement your retirement income. Many investors use annuities as their predictable, guaranteed stream of lifetime income. There are many different types of annuities so be careful and do your homework. You can buy fixed or variable annuities; income or equity; immediate or lifetime. Since you have quite a few choices, find a financial planner that you trust to explain which annuity fits your personal financial needs.
It’s Not That Hard
Retirement investing is not that difficult; people make it difficult. Accumulating enough retirement income to support yourself for twenty to thirty years does not just happen by itself, it takes some effort on your part. Take the time right now to develop your plan. And then, once you develop a plan, go the next step and stick with it; you will not regret it.
While you are working, sock as much money away as you can afford to, even if you have to give up some current day conveniences. Skip a dinner out once in a while and invest that amount. Pass up the convenience of lunch on the go and invest that amount. Over time you will not miss the lunches or dinners out. But you will eventually see the accumulation of money into an investment account that will support you in the future.