Over the years, you’ll need to balance your retirement savings with other expenses, like a mortgage payment or college for your children. As long as you continue to put money into your retirement accounts according to your financial plan, you should be fine. Here is a quick financial overview for soon-to-be retirees.
Envisioning Retirement
What do you want your retirement to look like? Some people imagine growing old in their current house, babysitting the grandchildren while their parents work. Some people picture moving to a St. George retirement community like the Jack Fisher Homes in St. George, Utah, which provides a social community of like-minded people. Other people dream of traveling the world and experiencing new things. The type of retirement you’re dreaming about plays a big role in determining how much money you’ll need in retirement.
Understanding Your Budget
Making a financial plan for your retirement starts with understanding your current budget and how much you spend each month. Through carefully tracking spending, you’ll get a bigger picture of how much money you’ll need. Granted, some of your current expenses, like a mortgage or the cost of commuting to work, may not be necessary when you retire, but you’ll still need to pay property taxes and pay for gas to get to the places you want to go. Figuring out your current expenses can help you estimate how much money you might need each month in retirement and how much total you should have in your retirement accounts.
Crunching the Numbers
Some of the money you’ll use to live will come from Social Security. You can estimate how much those payments will be through the Social Security website. If that’s not enough to cover all your expenses—and it probably isn’t—you’ll need to take the money out of your retirement accounts. Most experts suggest withdrawing no more than four percent of the money in your retirement accounts each year. This allows the money that’s still in the account to grow at a reasonable rate so that you are mostly living off the growth of those investments.
According to MarketWatch, you can set a target goal for your retirement accounts by taking the amount of money you think you’ll need each month and subtracting the estimated Social Security payments. Then, multiply that amount by 25 (representing four percent) and 12 (number of months in a year) to come up with a total amount you should have in your retirement accounts by the time you retire.
Ways to Save
Always make use of the retirement savings plans offered by your company. Putting money into a 401k is usually painless because your company will take the money out of your paycheck automatically. Many companies also offer “matching”, which means they’ll add extra money to your account.
You also have the option of starting an Individual Retirement Account (IRA). Remember that you have a target amount that you want to reach by the time you retire, so you need to plan accordingly. A financial planner or a simple retirement calculator like the one at Bankrate.com can help you determine how much money you should be setting aside each month.
Increase savings! Much easier said than done. But we have a simple guide that might help:
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Increasing Your Savings
If you haven’t been saving for your retirement consistently since you were in your 20s, you may have some catching up to do. This is fine. Look for ways that you can cut down your spending and add this money to the retirement funds. For instance, once you finish paying off the $200 a month you’ve been paying on your student loans, start putting that $200 a month into retirement accounts instead.
When you plan well, you can spend your twilight years enjoying the life you created. Take time to make a plan when you’re young and follow through on it over the years.
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