Life can be expensive, especially as we get older and require more care and support. Many people face challenges and hardships as they live their lives. A sudden emergency or surprise repair can leave families scrambling to find cash. Sometimes, that can mean taking money out of savings.
While doing this once or twice may not be an issue if you have a plan to recover, that can become a slippery slope. Over time, you can put a dent in your retirement savings, which puts you at risk of having less than what you need when the time comes.
Unfortunately, most people in the United States are not financially prepared for retirement. According to the Report on the Economic Well-Being of U.S. Households published by the Federal Reserve, only about 36% of adults think they are on track for retirement.
The Insured Retirement Institute conducted another survey that found most workers over age 40 do not have enough retirement savings and are not setting enough aside. They may have a nest egg, but it’s not enough to pay for years or retirement.
Over half of older Americans have under $50,000 saved for their retirement. Almost 6 out of every 10 workers save less than 10% of their income while a third saves less than 5%.
Despite the lack of funds, many also report plans that do not match their savings. Around 46% stated that they plan to leave the workforce by age 65 or sooner. This creates an unrealistic goal based on the savings statistics.
About half of workers believed that they would need over $55,000 per year while one-third said they would need more than $75,000 to live on.
Workers’ attitudes about retirement may be swayed by how they see their parents living. Some of the older generations have access to pension income to help pay for retirement. However, most younger adults don’t have that benefit available.
Around 67% of private industry workers have a company-provided retirement plan, but increasingly fewer have a pension.
It’s easy to see that for some, this could turn into a financial crisis in the future. At best, it could mean sacrificing many of their retirement dreams, or at worst, it could mean having no funds to pay for senior housing and necessities.
Now is the time to start saving for your retirement. Here are a few suggestions to help you get started.
Build a Money Roadmap to Retirement
The only way to know if you are on track is with a roadmap. You need to plan for your future, starting with how to save and where your retirement fund should be during each stage in your life.
According to Fidelity Investments, you should have at least one year’s worth of your annual salary saved by age 30. That should increase to three times your salary by age 40. And at age 50, you should have 6 times your annual salary in your retirement fund.
When you are nearing retirement at age 60, you should be up to 8 times your salary, reaching 10 times by age 67.
Some believe that you should plan to go higher. Merrill suggests saving 12 times your salary before retirement.
Much also depends on where and how you want to live during retirement. Passport Wealth Management certified financial planner Dan Tobias recommends using the 4% rule.
The rule states that you should withdraw no more than 4% of your retirement funds each year. If your current amount doesn’t add up to a comfortable lifestyle at 4%, then it’s time to save up.
Cut Your Spending as Much as Possible
One of the first things you should do is find ways to cut spending as much as you can. Are there any areas you could trim down to get more cash into your savings?
This can include small things like packing a lunch instead of buying one. It can also include bigger things like negotiating lower car insurance premiums.
There is no one-size-fits-all guide for lowering spending, but there are lots of suggestions out there to help you get started. You can also try writing down all your spending from the previous month. Look for places where you could cut back. The less you spend now, the more you can put into your retirement savings for later.
Take Advantage of Employer-Matched Funds
Employer-matched funds are basically free money, so make sure you take advantage of them as much as possible. Some companies offer 401k plans with a matching contribution.
For example, an employer may match 40% of employee contributions up to 5% of their salaries. If you make $50,000 annually, then that’s $2,500 going into your retirement funds. Your employer would contribute another $1,250.
It may not seem like much in the long run, but it will add up. And it is money that you are given for free, so take advantage of it.
Invest in an IRA to Save for Retirement
You can set up an individual retirement account (IRA) to build your retirement savings. An IRA is an account setup at a financial institution that lets you save for retirement that’s tax-free or tax-deferred.
A traditional IRA lets you save money with funds you may be allowed to deduct on your tax return. Earnings can be tax-deferred, meaning you pay when you withdraw your money after retirement. Many people are in a lower tax bracket when they retire, so end up paying less taxes on their savings.
A Roth IRA lets you contribute funds that you’ve already paid taxes on. The money you contribute can grow tax-free. And a rollover IRA lets you contribute cash from another retirement plan, like moving savings from an employer-sponsored plan into an IRA.
Use Catch-Up Contributions if Available
Annual contributions to 401k and IRA plans are capped. However, once you are 50 years old, you have the option of making catch-up contributions. During the calendar year that you reach age 50, you can add funds beyond the usual limit. This is a helpful way to catch up if you were short on savings over the years.
Automatically Deducted Retirement Savings
Saving for retirement should be considered a high priority. A good way to adhere to that is to set up automatic deposits. Services are available to allow you to set up automated contributions to your IRA. These can be deducted at regular intervals, so you are always saving before you spend your money.
Check with your financial institution to learn more about automatic contributions. Some also offer automatic investment plans that will put your money into specific funds for you.
A Place to Call Home After Retirement
If you are ready to retire or are helping an older loved one with their plans, Woodhaven Retirement Community is a beautiful place to call home. Multiple levels of care are available, including assisted living, long-term care, and memory support.
We also offer independent living and luxury living for people who want a hassle-free life with friends. Residents can participate in activities and events, dine together, and enjoy life in our community. Those who require more assistance can access state-of-the-art features in our assisted living apartments.
Visit Woodhaven Retirement Community online or contact us to discuss your retirement plans.