Tips for Retirement Savings

Retirment 3 19

Are you getting ready to retire? Do you think you have saved enough to retire the way you want? Well, do not worry there is time even if you are older and maybe have not saved what you think you will need. Like me, you may have ready that nearly 90% of Americans have saved less than $10,000 for retirement. While that may be the case, you must consider that a majority of workers in America are lower wage earners and one retirement savings plan does not fit everyone. And not everyone will need the same income replaced in their retirement. Most companies and generic plans are prepared for large groups of individuals, and this is not a one size fits all model that can be used from one person to another. Each person must look at their situation and delve into what they think they will need in retirement.

First you need to consider how much you are saving now. Regardless of income I as well as many other planners suggest everyone saves at least 10% of their salary, and some recommend saving 15%. Now some people will recommend that is 10% before any company matching while others say the percentage can include matching. All I can tell you is that the more you can save the better as I do not think it is wise to rely on anyone other than yourself in your retirement years.

When you start out in your career it may be easier for some to save the 10% and others will have difficulty in doing this at this point in their career. So throughout your working career it is going to be easier at some points to save as compared to others. If you are married, have a mortgage, and children there will be periods where saving 10% may be difficult. The key here is to save as much as you can at all times. And the earlier you save, the more that money will grow in your accounts. If for some reason you need to reduce your savings due to a life event then make sure you increase the amount back up as soon as possible to avoid having issues later in retirement.
And older workers are allowed to make unique make-up contributions once they are age 50 or older. With 401(k) plans, people are allowed to save $17,500. Those over age 50 are allowed an extra $5,500 in savings for a total of $23,000 a year. When it comes to IRA people are allowed to put $5,500 in their accounts on an annual basis. Just like with 401(k) accounts an IRA participant over age 50 is allowed to make an extra $1,000 in contributions for an annual total of $6,500.

The next thing that needs to be done is for you to determine what percentage of your salary will need to be replaced in retirement. On a normal or typical situation, most people need to replace between 70% and 80% of their salary in retirement. Some people need more others less. Some items you pay for now will be eliminated in retirement such as payroll taxes. Other items may stay the same such as property taxes or insurance on your house. Some items such as travel may increase as you may want to travel more now that you will have more free time. The key here is to crunch the numbers and see what percentage of your salary needs to be replaced and then target that number.

Once you have the percentage you need to replace then you will be able to determine how much you will need actually to save to replace that income. After you have the amount, you need to replace calculate how much you will need to save to replace that income then. If you want to take over 4% or 5% of your savings out then you will run the risk of running out of money during your retirement. That is about the maximum you should withdraw in order to ensure you do not run out of money. The less you dip into your principal, the better off you will be so keep that in mind.

Lastly, people need to consider what they will spend on medical needs in retirement. And right now I am not considering long-term care insurance. I have read that some people need as much as $200,000 in medical savings over their retirement. As health insurance benefits from prior employers are becoming less frequent, more people are relying on Medicare. Not that there is anything wrong with that scenario but Medicare may not provide the coverage private health insurance does. And the more you made while working, the higher your premiums for Part B and Part D will be in retirement. Now if you consider the possible need for long-term care that figure can grow even higher. As I have said in the previous blog, you can approach this possible need in one of the two ways. You can save and self-insure, or you can purchase a long-term care policy to cover your needs. The sooner you purchase the insurance, the lower the premiums will be but the longer you may be paying them. Look at your family’s medical history and make an informed decision on what you will need when it comes to your potential medical needs.

As you can see, no one person would need to save the same amount. Every situation is different, and a savings plan must be tailored to your particular needs. If you have any questions or need any additional information feel free to contact me.

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