The Best 10 Golden Retirement Savings Tips From Retirees For Retirees
If you’re anything like most of us, there’s few things you dread more than having to drag yourself out of bed at 6AM every morning to go to work and the drudgery of your daily commute. Here’s our retirement savings tips — to help you make the most of your paycheck.
Why work for more years than you absolutely have to? Because sometimes, no amount of retirement savings tips are going to detract from the fact that pensioners everywhere are finding it harder and harder to be able to afford to retire.
More than twice as many people over 70 are working now than a decade ago. Granted, some would-be retirees want to remain in the workplace on a full- or part-time basis, and like their job, staying on their feet and spending time with colleagues. Most, however, don’t have the luxury of being able to choose.
Like everyone else, older people have been hit hard by rising living expenses and skyrocketing inflation, forcing many to remain employed far beyond the retirement age in an attempt to stay desperately above the poverty line. The decision to retire is often entirely individual and the knowledge that you can’t yet afford to retire, lest you become unable to contribute towards your retirement savings plan, is likely to weigh heavily on any decisions to cease working. Whilst poverty amongst the 65+ has fallen from when it peaked in the mid-1990s, it’s been ticking steadily upwards for the better part of a decade following the financial crash, with 16% of pensioners living in poverty, despite benefits for over-65s having been protected against cuts.
While most everyone needs a retirement savings strategy of their own nowadays, high schools don’t proffer mandatory classes on 401(k)s and Individual Retirement Accounts (I.R.A.s). Nor do colleges teach anything about Roth I.R.A.s or 403(b)s. That’s where we come in. Here’s the retirement savings tips you need for life after your last paycheck and getting on the path toward a comfortable retirement.
1. The Best Retirement Savings Strategy? Get A Head Start.
Starting early is the hallmark of every good retirement savings plan. The best day to start saving is today, even if you can only put away $10.
By far the best way to save for retirement is this: start now. Start today. Why?
- The wonder of compound interest. You’ve probably read about this before, but here’s a short rundown:
If two people put the same amount of money away each year ($5,000), earn the same return on their investments (6 percent annually) and stop saving upon retirement at the same age (67), one will end up with nearly twice as much money just by starting at 22 instead of 32. Think about it another way: The investor who started saving 10 years earlier would have about $500,000 more at retirement. That’s all there is to it.
- Saving is a habit.
Saving early just makes sense — but that doesn’t mean it’s remotely easy. Thankfully, like all other habits, you can hone your instinct to save by practicing. If you work at it, it’ll start to feel good as you see your account’s balance swell.
How Much Should You Be Saving As Part Of The Ideal Retirement Savings Plan?
To put none too fine a point on it: as much as you reasonably can. Sure, a lot of the literature will tell you to save at least 20% of your income; there’s nothing altogether wrong with that, but the true number will depend on how long you hope to work, whether you’re expecting an inheritance of some kind and tons of other factors besides.
So take that first step and start with something, even if you’re starting small. Gradually work up to saving a little bit more each year. Do it early and with enough frequency so as to ensure that it becomes instinct.
2. Understanding Your Investment Account Options And How They Work
O.K, you’ve wisely decided to invest in a sound retirement savings plan, but how can you be sure you’re investing that money the right way?
The lineup of retirement accounts can often seem like it’s intended to confuse: 401(k)’s, 403(b)’s, 457s, I.R.A.s, Roth I.R.A.s, Solo 401(k)’s and the whole other lot of them. They all serve different functions and exist for specific reasons, but that doesn’t make them any less confusing.
The first thing you need to know is that your options and how you’re going to calculate your retirement savings will depend in large part on where and how you work.
If you work for a for-profit employer:
Available account: 401(k) plan.
If your for-profit employer offers any workplace retirement savings plan, it’s probably a 401(k). Many employers do not.
You can sign up for this whenever (not just during your first week on the job or at a specific point every year). The process itself is relatively simple: all you’ve got to do is fill out a form saying what percentage of your paycheck you’d like to save, and your employer will have it deposited with a company that’ll hold it for you.
Things to Note About A 401(k):
Hopefully your employer is matching some percentage of your savings. They match a dollar for every two you save, up to 6% of your salary. They may match all of it, up to 3%. If this is an option, do absolutely everything you can to avail it — that’s free money.
How much can you put aside in a 401(k)? The federal government makes the call on this, and it rises a little every year.
Like most other employer-based plans, 401(k) savings are not subject to income tax, though you’ll be taxed when you withdraw that money.
If You Work At A Non-Profit Employer:
Available accounts: 401(k), 403(b) and 457 plans.
If you’re employed by the government, or a nonprofit institution like a school, religious organization or a charity, you’ve got more varied options.
What to Know About A 457 Plan:
These are a lot like 401(k)’s.
What to Know About A 403(b) Plan:
You might be made to put your money towards an annuity in place of a mutual fund, which is what 401(k) investment is. Strictly speaking, annuities fall under the umbrella of insurance, which is why they often have very high fees. In some instances, especially if your employer is not matching your contribution, you may want to opt out of using 403(b)’s altogether and use an I.R.A instead.
If Your Employer Offers No Plan Or You’re Self Employed
Available accounts: I.R.A., Roth I.R.A., S.E.P. and Solo 401(k) plans.
People who are setting up their own retirement accounts will usually be dealing with I.R.A.s, available at financial-services firms like big banks and brokerages.
3. How To Invest Your Money
You don’t have to be a stockbroker extraordinaire to make smart investment decisions.
There are three primary investments, or “asset classes”: stocks, bonds and cash. Your retirement money should probably contain a mix of stocks and bonds – and we’d recommend having some actual money in there, too.
You can invest in stocks and bonds in one of two ways: by purchasing them separately or by purchasing them through a mutual fund. To put it plainly, a mutual fund is a collection of stocks, or bonds, or cash equivalents – sometimes all three.
4. Don’t Get Fancy
The cornerstone of any sound retirement savings plan is as follows: boring, un-fussy, humble and above all, cheap.
Don’t let Instagram investors coax you into a stock-war; yes, obviously there’s always going to be folks who seem to hit it big on the market every time. But resist getting caught up in who they are or will be. And you, googling stocks or industries, are, to be very frank, unlikely to outsmart the markets on your own, part-time.
5. The Blasé Glory of Index Funds
Index funds are the best way to save for retirement — point, blank period.
Index funds are like a net: they buy every stock or bond in a particular category or market. Their singular greatest advantage is the knowledge that you’ll be seeing all the returns available in, say, big French stocks or bonds in promising markets.
Yes, they’re supremely uninteresting (that’s the point!): you’re not going to see prices fluctuate wildly the way you might if you owned Apple stock. And that’s exactly what we’re trying to avoid.
6. Learn More About Fees
Welcome to the downside of retirement savings plans:
They’re not free. Not by a very long shot — and whatever you shell out in fees will come out of your returns.
If you are employed, the company managing your plan is charging your employer for the service. Moreover, every individual mutual fund in your retirement savings plan has its own costs. If you are self- employed, you’ll be charged for your I.R.A. at the mutual fund level and then pay whatever fees (if any) that the brokerage firm charges on an annual basis or each time you trade.
If you want to learn more about identifying and understanding retirement account fees, start by speaking to an advisor. But you can do some sleuthing of your own, too, using Brightscope which ranks thousands of employer-based plans.
7. Check In, And Often
Prevention is better than a cure, after all.
Once you’ve got your retirement savings plan all set up, it’ll only take you a few minutes every year to fine-tune your accounts.
The drawback of setting up automatic savings from your paycheck is just how easy it is to forget about it. Set aside an hour every year to take a cursory look at your accounts — that is, after all, your hard-earned paycheck you’re spending.
8. Save Another 2% Of Your Paycheck
It’s important not to stagnate, and besides, you barely miss the money automatically taken out of each paycheck for your retirement account, right? So it’s time to up your savings by another percentage point (or 2, if you can afford it). You could be looking at 6 figures worth of additional savings in a few years.
9. Go Over Your Investments
Preferably with a fine-toothed-comb in the form of an advisor you trust.
Maybe you’re saving too much for a new car or a down-payment — but not enough for retirement. The car can wait, and maybe the house can, too, but you can’t put off your retirement. Make all your investment decisions wisely, and with an eye towards your retirement savings plan.
10. Rebalance Your Investments
The pandemic has likely hurled at least a couple of your stocks into wild disarray. It’s important to re- calibrate with your advisor at this time. Maybe it’s time to sell some stock and buy, say, more bond mutual funds to put things back into balance.
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This article is for information purposes only. It should not be considered legal or financial advice. Consult a financial or legal professional before making any legal or financial decisions.
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