The average retirement age in the US is 65 but it’s important to start planning as soon as possible! The earlier you start saving for your golden years, the more time your money and investments have to grow.
The purpose of an ongoing savings plan is to ensure you can enjoy all the benefits of retirement, stress-free! Here are four tips to help you plan for the future.
Organize & Plan Your Finances
When you’re preparing to retire from your job, it’s important to have your finances in order. It’s estimated that retired life will require 70 to 90 percent of your pre-retirement income to live comfortably without working.
You will have to determine if large expenses like your mortgage and medical bills will be paid off by the time you’re ready to retire. As the cost of living continues to increase, you may want to plan on saving more than expected.
It’s also important to consider the amount you plan to spend on travel and other hobbies you want to pursue in your newfound free time. Whether you’ve always dreamed of spending a month in Europe or want to take up golfing lessons, you will need to put money aside to make your desires a reality.
Contribute to a Savings Account
One common way to save for retirement is through a 401(k). This employer-sponsored retirement account gives you the opportunity to put a percentage of your pre-tax salary into a retirement fund. From there, the money can be invested in stocks, bonds or cash.
Your employer will usually match what you invest up to a certain percent, however you are limited to the amount of investment options you can choose from. Because it’s employer-sponsored, the investment options must be approved by the federal government.
Another option is to set up a Traditional or Roth IRA. These are also retirement accounts; however you will deal directly with an investment firm, without an employer’s involvement.
With a Traditional IRA you do not pay taxes on the money you put into the account until its withdrawn. The money in a Roth IRA has already been taxed and allows you to withdraw money later without paying taxes. This gives you more investment choices, however your employer will not be able to match what you are contributing to the account.
Anticipate Future Costs
According to the National Council on Aging, 80 percent of older adults have at least one chronic disease. To anticipate the costs of senior care and reduce stress when the time comes, start saving now.
AARP reports the average caregiver may spend up to 20 percent of their income on out-of-pocket expenses to help a loved one. Consider potential costs like long-term care, hospital bills and home health aides for yourself, a spouse or parent who may become ill.
Learn How to Spending Wisely
Once you are retired, it’s important to make your available funds last. A popular system used to manage spending in your retirement years is called the “Four Percent Rule”. This system can help you determine how much to withdraw from your retirement account every year in order to maintain a heathy account balance.
Taking 4 percent or less from your account each year has been shown to provide steady, comfortable income to a retiree. If you are considering early retirement, think about reducing your account withdrawals to 3 percent or less each year, so you do not run low on money too quickly. You may also consider making adjustments to the amount you withdraw based on the economy, such as when inflation is high.
For more helpful information on financial planning and other age-related concerns, contact Avon Health Center today.
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