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With the crippling effects of the struggling economy being still felt by so many along with the rising cost of living, having additional money for savings is more of a dream than a reality.
It’s no secret that America is going through a retirement disaster at this point with more and more citizens aged 65 unable to retire due to lack of funds.
It is no longer mere housing prices that are increasing but the astronomical costs of living associated with this. The truth of the matter is that so many people have a hard enough time making ends meat that there is little concentration on future plans.
This article in the Financial Times warns that the “U.S. is building towards a pensions crisis.” In this article they note a shocking “45% of working-age household have no retirement savings.”
This is a sentiment that is echoed by many news and financial outlets as the program continues to worsen.
According to this article from CNBC, the Economic Policy Institute (EPI) reports that the “mean retirement savings of all families is $95,776.” They then go on to discuss that with so many families having no savings at all while some have extreme savings this number is quite skewed.
To remedy this they found the average of those sitting at the 50th percentile. This turned up shocking results when they found that this changed the number to a scary $5,000 put away.
With these startlingly low numbers it is more apparent than ever the importance of planning to put money away for retirement. While the $100 you put away today may not seem significant, it can create a nest egg that mean safety and security in older age.
Whether you are young and looking to start saving or are looking for ways to up your game in the retirement savings world, these 11 steps are sure to help you.
1. Start Early
When you are young planning for retirement is likely the last thing on your brain. While it may not be an attractive option squirreling away money as early as possible can work to reward you a lot later in life.
The earlier you start putting away money for your retirement the more you will have. Studies show that you will have more money at age 65 if you put $75 away per month when you are 25 rather than putting away $100 per month starting at age 35.
This is due to the interest accumulation over that time.
CNBC reports that in order to retire comfortably you should aim to have 10 times your final salary dedicated to savings. For many this means an intimidating 7 figure savings plan. If you compare this with the median number discussed above being closer to $5,000 it is clear to see the crisis at play.
Luckily they outline a recommended schedule of how to get there:
- Starting in your 20’s determine your yearly salary and plan to put that amount away by the time you are 30.
- In your 30’s plan to put away enough to double your salary so that you will have a total of three times your salary saved by age 40.
- This again increases in your 40s where you will need to squirrel away even more to have six times your salary by age 50.
- Your 50’s will follow suite saving as much as you can to be able to save eight times your salary by 60.
- In your final years of savings, your 60’s will be dedicated to achieving the ideal ten times your ending salary by the time you are 67 and ready for retirement.
You can see that this outline is based on a retirement savings plan that starts in your 20’s. If you are behind this timeframe you are likely going to struggle in order to achieve this.
Note also that the retirement age has been pushed now from the typical 65 to two years later to when you are 67.
The goal is that the moment you start earning money you should begin to allocate a small portion to retirement savings plans. Lots of times this begins after one finishes university and enters the workforce.
No matter which financial advisor you talk to they will tell you the earlier you start the better off you will be when you retire. Your contribution amount doesn’t change until you are 50 and it doesn’t roll over to the next year if you don’t contribute the maximum amount.
2. Learn About Your 401(k)
Your 401(k) is a savings plan that is started through your employer. Most of the time this is an incentive bonus package only found in career-like positions. With this plan you are able to contribute up to $18,000 annually.
This money comes off before your paycheck bringing you into a lower yearly income and the money is allotted tax free. For example if you make $2400 per month and put $400 to your 401(k) you will only have to pay tax on $2000. The $400 will not be taxed until you dip into your account.
This can save you more money at the end of the year as it has the potential to bring you down into the next tax bracket making your year end tax return more desirable. You can use the tax refund amount you receive can help you with step number 9 on this list.
3. Investigate Employee Match Programs
Some companies will match a portion of your 401(k) deposits. This amount will be set by your employer. Let’s say you make $60,000 a year at your job and allocate 5% of your salary to retirement planning meaning you contribute $3,000 a year towards your retirement.
If your company decides to match 50% of your contributions you will have an extra $1,500. This is free money that adds to your total so take advantage of it. Oftentimes there is a maximum to this such as they will match your contributions dollar for dollar up to $x.
It is strongly advised to contribute as much as you can afford to retirement. This is even more so true when you are working somewhere with a match program. Learn the limits of the contribution and go as close to those as you can afford. This will allow you to effortlessly double your money.
If you are a new employee or have never looked into this we strongly urge that you do. You could be earning free money that will help you at retirement. Speak with your manager or your company’s HR department in order to see if you are eligible.
Lots of times unexpected employers will have these perks such as Starbucks.
4. Start An Individual Retirement Account
Whether your employer offers a retirement plan or not it is always good to set up an individual retirement savings account as well. Especially for those who are contributing the maximum to their 401 (k), starting an Individual Retirement Account (IRA) will allow you to stash even more cash away.
A maximum amount of $5,500 can be added to this independent account which when combined with your employer savings plan will bring your yearly contribution total up to $23,500. This amount increases $6,500 when you are over the age of 65.
When you are deciding which plan to contribute to take a look at the rate of return. A difference of even 0.5% over forty years can add up to numbers that will blow your mind.
But in the same breath if your employer has a match program it is strongly recommended to take advantage of that feature as well. At the end of the day no matter where you put your money you can expect a healthy nest egg when it comes time for retirement.
5. Get Help With Bloom
For many the whole talk of a 401 (k) and IRA program can be confusing and stressful. This is especially true when you consider the many other retirement savings plans out there. Just as you do with your other big life decisions, it may be wise to get some help from a professional.
There are many companies out there designed to help make this process easier. Bloom is one of those companies that work with you to help you create and maximize your retirement savings plans.
By creating fully customized and personalized retirement plans this company works to ensure that you reach all your retirement goals.
Getting expert advice can prove incredibly rewarding. Blooom knows and understands how this area works and is there to tell you about how you can get the most out of the available programs to ensure you are maximizing your savings potential.
There is a small monthly fee associated with this program, but the information and services they provide have been said to be well worth it. Exploring your options here is a great way to ensure that you are able to lead a comfortable retirement.
6. Take Advantage Of Catch Up Programs
While it is ideal to start saving as early as possible, it isn’t always what happens. Whether you didn’t think to save or didn’t make a significant enough source of income while you were young to allocate resources to retirement, there are many reasons why you may be underprepared.
Retirement savings plans only allow you to save a certain amount of money each year. For those 50 or older you can take advantage of the catch up program which allows you to save even more money for retirement.
With a large percentage of the population unhappy with the amount of retirement savings they have, their are catch up programs you can take advantage of to set yourself up in the best position possible.
It’s important to start contributing towards your 401(k) as soon as possible because you only have so much you can give a year. There is no roll over or amount that accumulates over time.
This is true until you reach 50 years of age. Once you reach this age the amount you can contribute becomes much higher.
Prior to age 50, you can contribute up to $18,000 per year. Once you reach 50 years old you can take advantage of the catch up programs to add an additional $6,000 per year to total $24,000 annual contributions.
This is great as you will more than likely be making more money as your experience in your job increases.
The same is true on a smaller scale with your IRA. Your $5,000 yearly contribution maximum now increases to $6,500. Taking advantage of this increase will help you better prepare for retirement.
At this age, your children are likely less dependent on you and your situation with work is more stable allowing you to take full advantage. Being able to add that much more will make your life once you retire that much easier.
7. Register For Automated Savings
As a crucial rule in life, always remember that it is important to always pay yourself first. It may not seem important to begin thinking of retirement when you are sitting in a bar at 25 years old but trust us, it is.
Be sure that before you allocate money to your entertainment budget and buying yourself a new work outfit, you think about your future.
Lots of times if you notice the money coming out it may seem crippling. But if you set up automatic payments to your retirement accounts you will likely not even notice the contributions.
It’s wise to set these up monthly or biweekly with your paychecks. With this money can come out and move to your retirement savings plan without you having to consciously think about it.
It is crucial that you place an importance on also adding money to your IRA account. While it is hard to imagine yourself at the retirement stage when you are young, making even a small contribution can be life changing when you are older.
Try starting small and increasing the amount put away each month based on how it works for you. It is easier to make life work with less money when you are young and full of variable expenses than when you are old and are at a higher risk of being faced with unexpected medical bills.
8. Work Out A Budget
Oftentimes it does not matter whether you earn $15 an hour or $30 an hour, you will live directly to the means of your income. This means that the increased income will often get lost in dinners out, a new car, more shopping and higher rent payments.
That being said, you will find your life divided between fixed and variable expenses. Almost everyone has rent (or a mortgage), car payments, insurance, and cell phones to pay for.
Classify these as fixed expenses, these are payments that do not change and are essential to your life.
You can limit your variable expenses but not your fixed ones. Expenses like your mortgage or rent is not going to change. It is due on the same day every month.
There are usually rules that you have to abide by when it comes to your mortgage. Some banks allow you to pay a lump sum towards your mortgage at the end of the year. This money will go directly towards your principle and can lower your payments throughout the rest of the term.
On the other hand, variable expenses are those that are completely in your control. This can include everything from grocery bills, eating at restaurants, going to the movies, and gas for your car.
By creating a budget you will limit the amount you have in your variable expenses. It is important that you do not cut fun out of your life. This could actually lead to you spending more money because you now feel deprived.
The best way to create a budget that you believe will work for you. Sitting down and allocating an hour to figuring this out is important. With a plan in place, expect yourself to not hit your goals directly.
Instead, make sure that with every purchase you make in the next two weeks you get and safely store a receipt.
Watching your spending for two weeks to see how much you actually spend is a crucial role in developing a budget you can live by. With this you will be able to see exactly where you are over spending and where you may be underspending.
Seeing these total numbers can also be a bit shocking, hopefully enough so to make you think twice before swiping your card.
For example, that $3 Starbucks coffee that you buy every morning may not seem like a lot but multiplied over the course of a month and you have yourself a big chunk of money that could better be suited towards your retirement cushion.
The most crucial part of developing and keeping to a healthy budget is by constantly reexamining your spending. Be sure to spend some time every single month reevaluating your spending and determining whether or not your budget is still working for your lifestyle.
9. Make Lump Sums
There are many times where you will receive money above your everyday salary. Whether it is through reimbursements, tax credits or bonuses through work this is money you weren’t counting on.
While many people enjoy putting this money towards a treat, such as an expensive night on the town, a vacation or a shopping spree, there are better uses for it.
Making lump sum payments to your IRA will allow your money to grow faster. This is great because this money was not counted on so you will likely not feel the hit.
Allocating your tax rebate check to your pension will likely be an unnoticed way to make a real difference in your future pension.
Every time you get a raise put at least half that money that money towards your pension. You have been living on your previous wage for the length of your job so it is clear that you are able to do that.
With that being said, we know that you will likely want to move up in the world with more expensive places to live and new cars to drive.
Taking a mere half of your raise will still allow you with extra cash every month to be throwing towards retirement while also allowing you a comfortable nest egg to sit on later in life.
For example, say you receive a raise of an extra 2$ per hour. That translates to $160 a paycheck. If you started putting half of that away towards your 401(k) you could be sitting comfortably when you retire while also allowing your yearly income to not be as effected when doing taxes.
It will also leave you with an extra $160 to disperse in your life as you see fit.
10. Delay Your Pension
While you technically have access to your social security money at age 62 it is wise to wait as long as possible to access this money. This is especially true for those that are still able and willing to stay in the work force.
Not only will you be able to put more money towards your future retirement, you will be able to receive a higher annual income later in life.
Every year that goes by, until age 70, waiting to access this money will amount to larger payments.
For example, if you take out money when you are 62 and are able to get a $22,000 annual pension, this number will grow a couple of thousand dollars if you wait until you are 64 to begin accessing. Every year that goes by you are allowing yourself a more comfortable retirement.
11. Create A Goal
Knowing how much you need to retire can help plan how you get there. Creating a dollar amount you would like to have at retirement will go a long way to create your budget.
There are many retirement calculators online that can help you see how your money multiplies over the years.
If everything is laid out for you to see you will be able to gain an understanding about how putting an extra hundred dollars a month can affect you later in life.
Also, being able to easily see how changing your interest rate one percentage can affect your total amount over 30 years will motivate you to get the best one possible.
Saving for your retirement should be on the top of your priority list. By starting as soon as possible you will ensure that you make the most amount of money you can.
It’s strongly recommended to sign up for automated withdrawals so that you don’t miss a payment. If you are late to the game, you still have many options that will allow you to catch up and enjoy a comfortable and secure retirement.
By following these tips and tricks on this list you will have the best chance at having enough money to retire comfortably. Did we miss something? Let us know in the comment section below.