Financial Planning for Your Retirement
Know your retirement needs.
Think you are too young to start thinking about retirement? Think again. The sooner you start saving for your retirement years the better. Retirement is expensive, and is becoming even more so as people live longer lives. Experts estimate that you'll need about 70 to 80 percent of your preretirement income to maintain your standard of living once you stop working.
Find out about your Social Security benefits.
Social Security pays the average retiree about 40 percent of preretirement earnings.1 Contact the Social Security Administration for a free Personal Earnings and Benefits Estimate Statement. There are also calculators available if you log int your account on their website (Link opens in a new windowhttps://www.ssa.gov/benefits/calculators) that you may use to estimate your potential benefit amounts.
Learn about your employer's pension or profit sharing plan.
If you employer offers a plan, check to see what your benefit is worth. Most employers will provide an individual benefits statement if you request one. Before you change jobs, find out what will happen to your pension. Learn what benefits you may have from previous employment. Find out if you will be entitled to benefits from your spouse's plan.
Contribute to a tax-sheltered savings plan.
If your employer offers a tax-sheltered savings plan, such as a 401(k), sign on and contribute all you can. Your taxes will be lower, your company may kick in more, and automatic deductions make it easy. Over time, deferral of taxes and compounding of interest make a big difference in the amount of money you may accumulate.
Put money into an Individual Retirement Account (IRA).
For 2023, you can put up to $6,500 or your taxable compensation for the year (whichever is less) a year into an Individual Retirement Account (IRA), and delay paying taxes on earnings until retirement age. If you will be 50 or older by the end of the year you can put up to $7,500 or your taxable compensation for the year (whichever is less) a year.2
If you don't have a retirement plan (or are in a plan and earn less than a certain amount), you can also take a tax deduction for your IRA contributions. There are other savings opportunities such as a Roth IRA. With a Roth IRA, the contributions are not tax free, but the earnings are. Talk to an investment professional to find the right plan for you.
Don't touch your savings.
Don't dip into your retirement savings. You'll lose principal and interest, and you may lose tax benefits. If you change jobs, roll over your savings directly into an IRA or your new employer's retirement plan.
Consider basic investment principles.
How you save can be as important as how much you save. Inflation and the type of investments you make play important roles in how much you'll have saved at retirement. Know how your pension or savings plan is invested. Financial security and knowledge go hand in hand.
Ask questions.
Talk to your employer, your bank, your union, or a financial advisor. Ask questions, and make sure the answers make sense to you. Get good, sound, practical advice, and act now.
References
- Bieber, C. (2020, November 18). How much of your pre-retirement income will Social Security replace? Retrieved June 26, 2024, from The Motley Fool: https://www.fool.com
- Internal Revenue Service (IRS). (Updated 2024, March 18). IRA FAQs: Contributions. Retrieved June 26, 2024, from https://www.irs.gov
- Internal Revenue Service (IRS). (Updated 2024, June 25). Retirement topics - IRA contribution limits. Retrieved June 26, 2024, from https://www.irs.gov
Workplace Options. (Revised 2024). Financial planning for your retirement. Raleigh, NC: Author.