Here are two truths that apply almost universally: In retirement, your health costs will likely go up. In retirement, your income from working is going to go down (and, likely, eventually, stop). And while some living expenses will decrease (like the cost of your commute to work), but others will stay consistent or increase with inflation (like utilities and food). That’s why saving is so important — and it’s why I wanted to share some tips from my newest book, AgeProof: Living Longer Without Running Out of Money or Breaking a Hip.
Check in on your retirement savings.
There’s debate when it comes to the exact amount of savings needed to retire comfortably — the number depends, of course, on how much you earn, how long you expect to work, your living expenses and how long you’ll live. To get an idea of your own retirement nest egg, I have a calculator on my site. But if you’re looking for a general rule of thumb, it’s a good idea to aim to have 1x your annual income saved by age 30, 3x saved by age 40, 6x saved by age 50, 8x saved by age 60 and 10x saved by retirement. If you’re not there yet, take a deep breath and don’t panic. The ideal goal is to save 15 percent of your annual income every year, so if you’re not hitting that, try to ratchet up your savings rate by 2 percent a year. Other options include working a little longer and strategizing to take Social Security closer to age 70 than age 62 so your monthly payout will be higher.
Know where to save.
Workplace retirement accounts are a great saving option — you can automatically put away money from your paycheck before you ever see that cash, and you can take advantage of any employer matching dollars (essentially free money). If a work-based plan isn’t available, open an IRA or Roth IRA (or, if you work for yourself, a SEP IRA). The main difference between traditional IRAs and Roth IRAs? Money you put in the former is taxed once you withdraw it — at your current income tax rate at that time. For the latter, contributions are taxed now — when you put money in — and you can withdraw it tax-free for retirement. To help you choose between them, ask yourself: Will I be in a higher tax bracket now or when I withdraw this money later? For success, try to mirror a 401(k) system with your do-it-yourself retirement accounts by automating contributions so that you don’t have to make the good decision to contribute money every month. It should just happen.
Play catch-up if you need to.
The biggest financial regret most people have relates to the idea that they haven’t saved enough for retirement — and didn’t start saving earlier. After you’ve done a financial check-in and know where you stand, there are options to catch up — including catch-up contribution provisions. These enable your extra savings to grow tax-free. After age 50, you can contribute an extra $6,000 to your 401(k) or 403(b), $3,000 to your SIMPLE (Savings Incentive Match Plan for Employees) IRA and $1,000 in your traditional IRA or Roth IRA. (This also goes for health savings accounts, where you can sock away an extra $1,000 per year after turning 55.) One viable way to afford catch-up contributions is to reduce your cost of living — this can mean taking a second look at housing, transportation and education costs. Plan to sacrifice quantity rather than quality. Finally, planning to work longer can be the answer to a lot of stressful retirement questions. That gives you more time to save, the money in your accounts more time to grow tax-defered and Social Security more time to marinate. Again, for every year between ages 62 and 70 that you delay taking benefits, they’ll grow by about 8 percent.
With Hayden Field