The Pillars Of Successful Retirement Planning
According to the US Census Bureau, almost 77 million Americans are baby boomers, meaning they will be retiring in the near future or have already retired. Unfortunately, a large number of these people have not saved enough money to see them through their sunset years.
In fact, a study carried out by Teresa Ghilarducci, a professor of economics at the New School for Social Research, found that 75% of Americans about to retire have less than $30,000 in their retirement accounts. In addition, figures published by debt.org show that only 14% of Americans believe they will have enough money to live on when they retire. These statistics show the shocking state of America’s retirement landscape. To ensure you do not become another sad statistics, you have to plan your retirement carefully. Here are the pillars of successful retirement planning:
Early birds constitute people who have just cleared college/university and are entering the job market. At this stage, it is usually fairly easy to plan for retirement. The rule of thumb is to set your retirement goals and set out to achieve them. In addition, it is important to learn as much as you can about finance. This is important because financial literacy will help you make the right decisions throughout your life. Figures from the 2014 Consumer Financial Literacy survey carried out by Harris Poll on behalf of the National Foundation for Credit Counselling (NFCC) show that 73% of American adults need professional financial advice. This survey also found that American adults have misconceptions about credit scores, credit reports, and identity theft.
It is wise to start saving for retirement immediately after getting a job. If you don’t know where to start, you can use the 10-15-20 rule as a rough guide.
This means the minimum amount of money you should save for retirement is 10% of your gross income, but most financial experts recommend 15%. If you can afford to save 20%, you will comfortably reach your retirement goals. If you are a heavy spender, rein in this habit. If you do this, the additional money you save will have a huge impact on your retirement nest egg. In fact, a study carried out by Wealth Management Systems Inc. found that increasing the contribution rate from four percent to six percent could add more than $100,000 to the retirement account of a person earning $50,000 annually over a period of 30 years.
Midlifers are people in their late 30s to early 50s. Starting retirement planning at this stage is a bit tricky because you would have to save more to have a sizable nest egg by the time you retire. The good news is there are several ways of achieving your retirement goal. Firstly, if you are working, you should contribute as much money as possible to your workplace retirement plan because the government regularly raises the amount of money workers can contribute to their retirement plans. For instance, in 2013, the government allowed workers to contribute $500 more to their 401(k) and 403(b) accounts than in 2012. This means workers 50 years or younger can save an extra $5,500 on top of their $17,500 annual limit.
Secondly, use Saver’s Credit to reduce your tax bill. Most people in the low to middle-income bracket could be eligible for a tax credit of $1,000 to $2,000. To qualify for this tax credit, one must be saving for retirement with an IRA or other plan. However, most people who are eligible for this tax credit do not know about it. According to a study carried out by Transamerica’s Center for Retirement Research, only 21% of eligible workers know about Saver’s Credit. Thirdly, match your employer’s contribution. Most employers offer to match their employees’ 401(k) plan contributions. For instance, if you employer offers to match 50% of contributions up to 5% of your annual salary, contribute enough to take advantage of this offer because it is practically free money. Finally, consider a gold IRA rollover. This will allow you to invest in god bars and coins such as American Eagle, Canadian Maple Leaf, and Australian Gold Kangaroo. The good news is you will not incur tax penalties if you carry out a direct rollover.
If you would like to stop working within the next 10 years, planning for retirement should be more urgent and detailed. To start with, avoid getting into the planning angst identified by psychiatrist Elisabeth Kübler-Ross. Planning angst phases include denial, anger, bargaining, depression, and acceptance. Fretting, worrying, and blaming all manner of people for your predicament will not change the fact that you may not have enough retirement money. Secondly, consider delaying your social security payments. If you do not touch social security payments before the age of 70, you increase the likelihood of receiving a higher amount in the future according to Debra Greenberg, IRA product management director at Merrill Lynch. The earliest one can start receiving social security benefits is at age 62.
If you wait until you are 70 to collect these benefits, you will have more retirement income at your disposal. Thirdly, take advantage of catch-up contributions. Employees aged 50 years and older can contribute $6,500 more to their 401(k) accounts. These catch¬-up contributions can boost one’s retirement savings significantly. Fourthly, exercise regularly and adopt a healthy diet to reduce the likelihood of taking regular trips to the hospital. Remember healthcare costs can drain your savings very fast. A study published in the Journal of General Internal Medicine found that 70% of Americans aged 65 years or older require long-term healthcare. Even worse, these seniors spend an average of $10,000 in out-of-pocket healthcare expenses every year.
In conclusion, it is possible to save enough money to live on after retirement. However, it is advisable to start as early as possible to avoid financial challenges such as contributing more money every month.