Building up your retirement savings requires careful planning. You need to assess the time left until you retire, your current assets, and the amount of money you’ll be able to save until you retire. To ensure sufficient financial resources to improve or simply maintain your lifestyle after you retire is the main goal of a successful retirement program. How much you will need to save to enjoy your retirement lifestyle depends on how you want to spend it.
Most financial planning experts say that you’ll need to save enough so that your retirement income is at least 70% of your pre-retirement income (but many people find this income insufficient), with a higher percentage if you plan to improve your living standard and have more expenses. Here, we list 5 steps to take in order to successfully implement your retirement program.
1. Start as early as possible
It’s never too late to start saving for your retirement. The time is right now, so make a clear plan as soon as you can. The sooner you plan everything out, the sooner you will see your financial contributions compounding into something substantial and meaningful. Decide exactly when you want to be financially independent or retire, and the focus on execution – start putting money into a brokerage account and a Roth IRA, max out your 401(k) every year, and contribute to a health savings account.
If you’re still young, then time is definitely on your side because you’ll have to save less every month to reach your goals. If you start saving at 35, you’ll have to save $30 per day to reach a million by age 67. On the other hand, if you start at 23, you’ll have to save just about $15 per day to become a millionaire by age 67.
2. Take advantage of a 401(k) match
Don’t miss to take a full advantage of a 401(k), if your company offers it because it’s basically free money. Whatever contribution you put towards your 401(k), your company will match up to a certain amount. Let’s say that you choose to put 5% of your paychecks into your account, so your employer will also put that same amount, thus doubling your contribution.
The terms of 401(k) vary widely, and your employer may choose not to match employee contributions at all or to use a very generous matching algorithm. Remember that you’ll get their money only if you put your money in first.
If you’re an Australian citizen, you may be entitled to Age Pension, in case you’re eligible for it. Eligibility for Age Pension is determined by the somewhat complicated age pension income test. Pensions have asset and income limits, s your income from all sources is assessed, and if you are over those limits, the pension you get is lower.
3. Automate your monthly contributions
Once you automate your savings, you will quickly learn to live without the money you’re setting aside, because you’ll never actually see it. What percentage of your salary to save again depends on your needs, and there’s no definite way to forecast your retirement needs accurately. However, according to certain clear benchmarks, if you’re early in your career, aim to save 16% of your annual salary. If your employer is matching your savings, then you’ll need to save only half of it, so it maybe won’t seem such a tough task. Look to set up an auto-increase option as well, so you’ll be able to choose how much you want your contributions to increase and how often.
4. Leave your retirement savings alone
Don’t touch your retirement savings. That’s what any financial planning expert will tell you in case you’re thinking about doing it, and there are many reasons why they are right. If you haven’t reached a certain age, you’ll have to pay a 10% penalty on the retirement money you withdraw and have to include those withdrawals as income on your tax return. Also, retirement funds are protected legally, so if you fall into a financial crisis and end up in court with your creditors, they may attach your investments and assets, but won’t be able to reach out to your retirement savings. That’s why you shouldn’t tap into your retirement savings in case of financial crisis.
5. Save surplus money
If you get some extra cash – a small windfall, birthday check, or bonus – send at least a portion of it straight to your savings account, instead of blowing it off on an impulsive shopping or unneeded vacation. Deposit the money right away in order to resist the temptation of spending it right away.
Having a solid and specific plan for your retirement is required for a safer financial future. Of course, nobody knows what future brings and what your needs may be when you reach age 65, but having at least 80% of your preretirement income will be enough to at least keep living the lifestyle you lived before. Figure out how much money you have to set aside each month, automate your payments, take all the advantages there are (such as 401(k) matching), and never tap into your retirement savings account. Then, you’ll see the beauty of compound interest.