How much money do I need for retirement?
If you are in your 20’s, 30’s or even 40’s, you’re most likely not thinking, or at least not much, about retirement. Many of us feel like we have plenty of time to think and plan for retirement, hence we prioritize today’s needs and wants and we tend to minimize our future needs.
According to a recent survey, Americans are feeling much better about their retirement, yet 36% of workers have less than $1000 saved and 44% have no clue how much they’ll need in order to retire.
In most cases, it does not matter how good we “feel” about our retirement, many of us are ill equipped and very unprepared to face those retirement years.
There are multiple things you can do, depending on your age and your financial position, in order to become better prepared
Figure out the “magic” number
Estimating your retirement income needs should your first step. Even though the number will be just an estimate, it will help you create a doable plan of action. You may not be able to start saving towards that goal 100%, but at least you’ll have a “specific number” to strive towards.
Estimating your retirement income is really not that hard. There are many wonderful tools to help you do that in just a few minutes or even seconds.
CNN Money has a great visual calculator to help you get a general idea of your target number by simply putting in your age, your retirement age, your current salary, your current savings and the percentage of your income that’s being set aside towards retirement .
This calculator does not get into the nitty gritty of your current assets, debt levels etc. but it’s a great tool to give you a “ball park” figure.
Bankrate is another great resource for quite a few retirement calculators. Unlike the CNN Money calculator, Bankrate’s tools get into the specifics of your finances in order to help you get a more accurate number on your future retirement needs.
Are you in your 20’s or 30’s?
Here is a list of items you should pay close attention to in order to maximize your retirement contributions:
This one is a no brainer. If your employer offers a matching program for your retirement, you should contribute at least the percentage of the match. Since your contribution is with pre-tax dollars you won’t feel it as badly in your actual paycheck.
No employer match option? Start your own Roth IRA. You can contribute up to $5,500 a year towards your retirement. That’s $230 each paycheck, if you want the maximum benefit. Since your Roth IRA is a post-tax contribution. This means, you won’t have to pay taxes upon withdrawal. Another benefit to the Roth IRA, is that you can access the principal (not the interest earned) without penalties!
Many young people choose to invest money in expensive cars rather than prepare themselves for the future. If you have a car payment that’s $350 – $450 per month, you are most likely cheating yourself in the long run. Combine your car payment with a higher gasoline cost (if you’re driving a gas guzzler) and a higher cost of insurance, and you have just identified a “black financial hole” that could be reclaimed for your future benefit.
Are you in your 40’s or 50’s?
There is nothing better you can do for your financial future than to eliminate all of your consumer debt. This stage is no time to accumulate more debt. It’s time to become debt-free! Figure out a strategy that makes sense for you, whether it’s attacking your highest interest debt first or your smallest balance one in order to create a quick financial win. Make a plan and go after it with determination. make a commitment not to carry a revolving credit. At this stage of your life you should have no other debt other than your home mortgage to focus on.
You should make it your goal to own your home outright by the time you retire, or earlier. being completely debt-free will tremendously expand your retirement options and will stretch those retirement dollars much further! Recent statistics show a troubling trend. More and more homeowners carry their mortgage into retirement. As many as 30% of those who are 70 years old still have a mortgage payment! That’s additional $800 – $1200 a month that could be used for other expenses like health care.
You still have time, so make it your goal to wipe out your mortgage payment as soon as possible. Adding even as little as $50 a month to your principal can shave off years from your mortgage.
Are you in your late mid 50’s to mid 60’s?
Long-term care insurance
This is a great time to look into a long-term care insurance. Avoid any surprises by learning about the financial cost that long-term insurance carries. Make sure you know what each option covers and more importantly what it DOES NOT cover. Here is a quick glance at long-term insurance care:
· Pays for home care, assisted living or nursing home care.
· A 50-year-old buying a typical policy—one that would pay a daily $200 benefit for 3 years with a 3% compound inflation option—is now $2,235 annually, according to the American Association for Long-Term Care insurance.
· Two options are available: Unlimited lifetime benefits OR fixed benefits—make sure you know what you are getting.
· The best time to buy long-term care insurance is between the ages of 55 – 64.
· Once you purchase insurance, the insurance provider cannot cancel or raise your rates based on changes in your health.
As you can see, each age group can take certain steps to assure the best retirement possible. Don’t get overwhelmed, just do something and you’ll be ahead of many in your generation.
Take it one step at a time. With a little planning, awareness and willingness to do what’s necessary, you’ll position yourself very well for your “golden” years.
Image by OTA photos