Wondering if you have enough saved, and how and when to retire? Here are some tips to help you plan and prepare for your golden years.
How Do You Save for Retirement?
Having a carefree retirement means saving well in advance. Have you maximized your investments in these common savings vehicles?
Many employers will match a portion of your contributions when you put aside pre-tax money from your paychecks into a 401K plan. Because the contributions use pre-tax money, participating in a 401K plan also will reduce your taxable income and can help to lower your tax bill.
According to the Internal Revenue Service, the individual contribution limits for a 401K plan is $18,000 in 2017 with an additional $6,000 of catch-up contributions available to employees who are 50 and older. So if you are 50-something and want to give your retirement savings a boost, you could contribute as much as $24,000 a year to an employer-sponsored 401K plan.
Individual Retirement Account (IRA)
With an IRA, you can stash as much as $5,500 per year for your retirement, or $6,500 per year if you are 50 or older. With a traditional IRA, you may get a tax break when you contribute, since your contributions may be tax deductible. With a Roth IRA, you won’t get a tax deduction when you contribute but you also won’t be taxed when you withdraw that cash at retirement age (older than age 59 ½).
If all these terms are new to you, you may find this guide to common retirement-planning lingo helpful.
What Is the Retirement Age in the U.S.?
The earliest you can receive Social Security benefits is age 62, but if you start taking your benefits before your full retirement age, you will receive reduced benefits until you reach that full retirement age. (Your full retirement age depends on your year of birth, and you can figure yours out using the Social Security Administration’s retirement calculator.)
Everyone wants to retire early, but can you afford it? According to the Social Security Administration, a man reaching age 65 today can expect to live on average until age 84 and women can expect to live until 86. Does your retirement plan provide for 20-plus years of living expenses? When should you begin receiving your Social Security benefits? And if you are married, when should your husband or wife?
If you have built up significant retirement savings, you may be able to retire early. But if you have some catching up to do, it may be best to work at least until the age when you will receive your full Social Security retirement benefits.
No matter what age you are now or the age at which you plan to retire, use a retirement savings calculator to help you figure out how much money you need in retirement (and how much that means you should be saving now.) Consult a financial planner and discuss your retirement savings, expected Social Security benefits and your retirement plans and goals. Will you be significantly downsizing and lowering your expenses in retirement? Or do you plan to stay in the same house for the next 30 years? These are all factors to consider and things to discuss with a financial adviser.
Get Out of Debt Before You Retire
If you are struggling with high-interest credit card debt, now is the time to pay it down. Carrying too much credit card debt can lower your credit score (you can see your credit scores for free on Credit.com and a personalized action plan for improving your scores). It also eats away at your retirement savings — every bit of interest you have to pay on credit card debt is money you won’t have when you retire. So make paying down debt and keeping it gone an important part of your retirement plan. Adjust your budget and build up some emergency savings to minimize your chances of reaching for a credit card when a large unexpected expense occurs.
This article has been updated. It was originally published February 02, 2015.