Savings benchmarks allow you to assess whether you’re on track to reach your retirement savings goals. Read through the following tips to hopefully help cushion your golden years.
Table of Contents
1. Determine Your Needs
Though some aspects of retirement may be beyond your control, such as Social Security payments and how inflation impacts prices over time, you do have the ability to determine how much you save – so it is crucial that you take an inventory of your needs prior to saving money.
A savings calculator takes into account other sources of income such as Social Security benefits, pensions, part-time jobs and rental property as sources. If you’re thinking you might get a gold IRA account, it may also factor-in your potential money growth, such as with any money you have saved in accounts such as 401(k), IRA or Roth IRA plans. However, you should know that any money you withdraw is considered taxable income.
There are various approaches for using one of these calculations, but one common rule-of-thumb method is multiplying annual spending by 25 – this gives an accurate representation of how large savings must be to allow safe withdrawal of 4% each year during retirement.
As soon as you have an estimate of your retirement spending, it’s essential to account for additional costs such as healthcare and travel. Consider how your lifestyle might evolve with retirement as some expenses may increase while others decrease.
For a major cost-saving tip, I recommend that you consider hiring a cleaning service or making all your meals at home to reduce monthly bills, while at the same time traveling more or taking up hobbies that require additional supplies or equipment. These needs may seem essential, but will save you thousands in the long run.
2. Set Aside Money
Plan ahead in order to secure enough savings for when you retire by using a budgeting system or spending diary to track where and how you spend money, then allocating some of it to savings instead of blowing it on expensive designer bags. Compound interest works wonders; take every chance you can to increase savings!
Consider inflation when estimating how much to save for retirement – something you can learn about here. As prices are constantly rising, your purchasing power may deplete over time as inflation diminishes its purchasing power. Many retirement calculators include an inflation factor to account for this.
When it comes to saving, saving 15% of pre-tax income should be sufficient for most. It is especially effective if you begin saving early and remain consistent throughout your career. If your employer offers matching contributions for a 401(k), make sure you contribute enough in order to realize its full benefit.
As soon as you reach your 30s or 40s, saving should become a larger portion of your income to ensure adequate funds for when you retire. Saving at least 25% of pre-tax income each year in an Individual 401(k), SEP IRA or SIMPLE IRA to maximize contributions may be wise for self-employed workers looking to maximize contribution limits each year.
Even if you have fallen behind on saving for retirement, it is never too late to catch up. Indeed, beginning sooner means more time for investments to grow and recover from market downturns. What matters most is acknowledging your need to save and finding ways to increase contributions.
3. Create a Budget
Many people assume they must save a certain amount for retirement, but in truth it depends on several factors, including age and living situation in retirement as well as how much money will be necessary to maintain your quality of life during working years.
Once you’ve identified your basic expenses, it’s time to create a budget. Begin by classifying expenses into categories: fixed (mortgage or utilities), variable (food and transportation), and discretionary (cable TV and gym memberships). Next, estimate the amounts spent each month for these categories of expenditure; it is helpful to prioritize fixed expenses first as these won’t change once retired – then allocate any leftover budget to things such as travel or new hobbies.
Your budget must account for all sources of income, such as Social Security benefits (https://www.nasi.org/learn/social-security/what-is-social-security/) pensions, 401(k)/IRA contributions, annuity payments and earnings from part-time work. When creating this budget it’s important that realistic assumptions are used regarding expenses and income sources as well as inflation rates and returns from savings and investments.
Establishing a budget can help retirees avoid one of the most common financial mistakes: spending too much of their nest egg too early. By following some straightforward steps, creating a budget will enable them to enjoy retirement while stretching their savings over decades – maybe you can even afford that Broadway show or cruise you’ve always dreamed of going on?
4. Buckle Down
Many Americans face the reality of falling behind on their savings with alarm. Although past miscalculations cannot be corrected, there are steps you can take now to catch up and ensure a fulfilling post-work life.
To reach your savings goals, the key to successful retirement is creating an efficient budget that meets them. This may involve cutting back on unnecessary expenses and cultivating a family culture of thriftiness in which members learn how to do more with less. It may also require making tough choices about what matters most in retirement: this could include forgoing exotic destinations and hobbies that cost too much or downsizing your home to reduce utilities and maintenance expenses.
As part of your retirement budget, be sure to include all expenses associated with retirement. While some expenses might seem obvious – like no longer needing transportation costs – others might go unaccounted for – such as increased food bills due to eating at home more often after leaving employment.
Care is another factor you must keep in mind, depending on your age and whether or not you have access to medical savings accounts or supplemental policies. Consulting a medical professional or financial planner may give a better sense of what health care costs will be in retirement.