Are you over 50 and thinking of retiring? Do you know what your options are in the area of retirement? Well I hope that you at least are saving in some form for your eventual retirement. Most of us do work somewhere that offers a 401(k) and I really do hope you are taking advantage of the opportunity to save some for your golden years. And if you are lucky enough to work for an organization that offers a match to your contributions I really hope that you are at least contributing the full amount that will receive the match. It is never a wise move to leave free money on the table when it comes to your retirement. Think of it another way, it is an instant positive return on your investment. Either way make sure you contribute at least the amount that your organization will match if not more.
If you have reached the age of 50 you need to make some changes that will protect you and your family in your retirement years. The first is you have to make saving a non-negotiable item in your household budgets. You have to save and pay yourself first because in retirement I would not count on Social Security to be enough to cover your expenses. One way to do this is to contribute to your work’s 401(k) as that is an automatic deduction from your pay and in essence you will not even notice the money is gone because you technically never saw it in your bank account. If you are already contributing to your 401(k) then consider making automatic contributions to an IRA that will be deducted directly from your bank account on the same day you are paid. Again this is almost like you never had the money to spend because the funds are directly taken from the account before you even notice that they were there. In a simplistic term make saving for your future as automatic as you can and it will be fairly painless. Remember that individuals over the age of 50 are allowed extra contributions to 401(k)’s and IRA’s. Pay off high interest credit cards instead of paying them the high interest that they charge on almost all credit cards. This is another way to pay yourself instead of paying financial entities.
So how much will someone need when they retire? That is the question all of us would like to know along with what is the return on my invested money going to be. If we had the answer to those questions retirement would not be a stressful event and require years of diligent work to save enough to live comfortably. As far as how much you will need to save that will depend on a few factors. The most common are what will be the return on your investments, how much will you need each year to cover your expenses and how long will live as a retired person. Now that last one is right up there with the other two questions we would like to have the answers to when it comes to planning our retirement. But let’s face it no one can predict the future so make the most educated guesses you can with the best possible information you can find. As for how long you may live in your retirement years you can look at your family to maybe get some insights into your longevity. If your grandparents and parents lived into their 80’s there is a good chance you might as well. Now as for how much you will need to save some say about 25 times the amount you will withdrawal each year. While this may sound good you will have to know what your expenses will be and how many years you will be taking the money out of your accounts. Another way to calculate what you will need is to take the amount you have saved and project what you may expect to earn on the investments. Here it is better to be conservative rather than aggressive when it comes to returns. If you have a million dollars saved and it earns a conservative 6.5% a year you will be able to take out $65,000 a year without depleting your principal. Also when you are figuring out what you will need in retirement it is not only important to be realistic in your returns but you must also consider inflation. A safe assumption for inflation is about 3% so your real return on a 6.5% return is really 3.5% adjusted after inflation. Remember a million dollars today will not purchase the same amount in 20 years due to inflation. Keep that in mind when you are trying to calculate your needs.
With all of these things being taken into account for it can be a safe assumption that the following age groups should consider saving these amounts. If you are smart and start saving in your 20’s you can expect to have a relatively good retirement putting away 10%. Each decade you decide to wait you can increase that amount by 10% so as you can see it is best to save early and save often. Now consider it is estimated that two thirds of Americans use Social Security as their primary source of income. Then you must consider that the other third of Americans it is their only source of income in retirement. And on average Social Security payments are about $15,000 a year.
Also you need to consider that you may have expenses now that you will not have in retirement. One could be the Social Security tax itself. Another may be life insurance as retired people have much less of a need for life insurance than working people. Also it is a good idea to save with your future health care needs in mind. Do not make the mistake of thinking Medicare is free or will cover all your health care needs. Medicare premiums are deducted directly from your Social Security payments and then even after considering this you can really only count on Medicare to cover about 60% of your health care costs.
With all of these things to consider it is always the best idea to start thinking of your retirement early. Save as much as you can and try to make it as automatic as you can. With proper planning anyone can have a truly blessed retirement.
