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A Roadmap to Retirement Savings

A Roadmap to Retirement Savings

Ah, the golden years. No more early morning alarms or rush hour traffic. It’s time to kick back, relax and enjoy the lifestyle you’ve been working toward all these decades. Well, maybe not exactly…see, sadly, experts believe that approximately 70% of Americans are not saving enough for retirement. Worse, it is estimated that about half of U.S. families have no retirement savings at all! Okay, what?!

In order to reach your retirement savings goal, the most important thing to do is to start saving and start saving as early as you can! Don’t make the mistake of thinking that you have plenty of time to worry about saving. If you’re in your 20s and are just starting your career, then now’s the time to start saving for retirement, because the earlier you start, the better off you will be. You want to maximize the power of investment growth and compounding interest. Fidelity Investments recommends trying to save at least 15% of your pretax income each year, but in truth, every little bit counts. Now, if you don’t start saving until later in life, you will need to save a higher percentage of your income to try and catch up. Experts believe you should ideally plan for about 45% of your retirement to come from savings and the rest from Social Security and pensions. Unfortunately, the world is far from ideal. So, where do you start, how to catch up, if already behind and what can you do to ensure your golden years are actually golden? You’ve come to the right place!

Question 1: How much should you be stashing away for retirement? Well, determining the total amount you will need is actually a bit more complex than you might think. AARP, a great source of discounts and information for those who are 55 and older, says a rule of thumb in the past has been 70 to 80 percent of your pre-retirement income, but some experts are now suggesting that might not be enough (ugh!). 100 percent of your pre-retirement income may be a better earmark, at least for the first ten years of retirement, as spending may not slow down when you first retire, as you focus on traveling and enjoying retirement to the fullest, and so and so forth. I mean, you retire to enjoy your life, right?!

What you need to retire comfortably varies greatly from individual to individual and is largely dependent on the age you wish to retire, your life expectancy, your lifestyle and spending habits, rising health care costs and inflation, among other things. According to the Bureau of Labor Statistics, the biggest annual expenses among older households include housing, transportation, food, healthcare and of course entertainment. Although your retirement needs are based on individual spending habits, experts offer the following benchmarks to how much you should be saving. Check out this cool little chart, and remember to breathe: 

  • 30 years old – 1X your annual salary
  • 35 years old – 2X your annual salary
  • 40 years old – 3X your annual salary
  • 45 years old – 4X your annual salary
  • 50 years old – 6X your annual salary
  • 55 years old – 7X your annual salary
  • 60 years old – 8X your annual salary
  • 67 years old – 10X your annual salary

You still with us? Good! Yes, there is a large likelihood you aren’t at those percentages, few are. But the good news is, you can still retire and do so in the way you’ve always dreamt of!

Firstly, it is vitally important to be honest about how much you will want to spend during retirement to come up with an accurate figure about how much you will need to live comfortably when you reach that point. It means taking a close look at your expenses and making a good estimate as to whether they may or may not change as this will help you determine just how much you need to save to get as close to those figures as possible. AARP provides a handy online retirement calculator to see if your retirement is on track or help show you how far off you may currently be. Either way, you gotta start somewhere!

Even if you feel you’ve planned thoroughly in the past, circumstances may have changed, you may have run into a financial emergency, and you may have gotten off track, and honestly, that’s okay! Make sure you’re revisiting your retirement plan on a regular basis so you can make the necessary adjustments to ensure you reach your goal!

When to Retire?

Is it time for that next chapter of life? Retirement is a huge decision, right up there with determining when to start your family or buying a home. It can be a huge transition and therefore should be way better planned out than deciding what’s for dinner. If you’re already nearing retirement age, the actual timing will be determined by how close you are to reaching your retirement savings goals. Pretty easy. It’s your income stream that’s going to provide you with a comfortable retirement after all. Healthcare is another important factor in determining retirement age. 65 is the age of eligibility for receiving Medicare benefits. If you don’t have another form of healthcare, you may need to wait for Medicare to kick in. You can learn more about Medicare at medicare.gov.

If you’re younger, the age at which you hope to retire will have a large impact on the savings you will need and your benchmarks along the way. If you plan on retiring early, you will need to save a higher percentage of your income to hit said benchmarks. Not as easy! There are other factors that will come into play as well. Perhaps you’ve been saving your entire life to retire early and travel the world. If you have the money to achieve this goal, then by all means, you do you. Maybe you love working and can’t stand the idea of being idle. We know the feeling, we love our jobs! There’s nothing wrong with delaying retirement until you’re comfortable with it, or even with working part-time while being semi-retired, just to stay active. In fact, staying active well into your older years not only keeps the income stream flowing, but can also have health benefits to boot! #winning

Five Tips for Saving for Retirement

  1. If you haven’t started saving, start today! Seriously, if you take nothing from this other than that, we’ll take it, because it is that important! The earlier you can start saving, the better off you’ll be. Best way to do this are to save automatically with payroll deduction. You won’t even miss the money, because you never even see it. You can’t spend away what you don’t have access to. Wanna take it a step further: speak to a financial advisor to help you plan for the future. We happen to know just the guy!
  1. Set a retirement goal. Having an estimate of how much you will need to retire comfortably will make it easier to set and watch your benchmarks along the way. Monitor your plan and adjust it if needed. This may include the amount you are saving to the risk level of your investments. It’s always best to work with the assumption that your personal retirement savings will be your primary source of income during retirement, that way, you’ll be motivated to save as much as you can!
  1. Contribute as much of your income as you can to your 401(k). You can defer up to $18,500 from your paycheck. If you’re 50 or older, you can save even more pay making what’s called a “catch-up” contribution. That’s limited to $6,000 a year for a total of $24,500. This does not include the matching contributions you may receive from your employer. To learn more, speak to your accountant.
  1. Contribute to a Traditional or Roth IRA as well if you can. Speak to your accountant or financial advisor to see if you are eligible and which would be the best fit for you. Here at Choice One, we offer both! People helping people is the credit union way!
  1. Consider delaying taking Social Security. Your full Social Security benefit won’t reach the max until age 70. So, although you can start your retirement benefit any time after 62, for every year you can delay receiving a Social Security payment up to age 70, your monthly benefit will actually increase. You can learn more at about that here. Many experts feel that the number one major retirement mistake most Americans make is taking their Social Security before they are 70, so if you can keep on working, it benefits you to do so. Something to think about…

Ready, Set, Retire!

So, you’ve saved enough and feel you’re ready for that next big adventure: retirement! Take the time to carefully review your finances one last time and make sure the time is right. Develop a budget, evaluate all of your sources of income and be sure you know without a doubt, you have enough money. There’s nothing worse than running out of money a few years after retiring! Be sure to anticipate and account for the cost of healthcare, as it almost always goes up as you get older. Consider the pros and cons of purchasing a long-term care policy. Speak to your financial advisor to determine the best way to start taking income and to revise your investment strategy as you embark on this new chapter. And most importantly, remember that you’re retiring from your career, not from life, so be sure to take great pleasure in all of the wonderful things that await you!

Here’s to a happy retirement!

Read more informative articles to help you improve your financial situation on our Choice Words blog. New posts weekly! And be sure to give us a follow us on Facebook, Instagram and Twitter as well so you don’t miss a thing! You can also visit one of our convenient credit union offices in Wilkes-Barre, Plains or Hazleton.