CONSIDER THIS:Conventional wisdom once dictated that workers should save $1 million by the time they retire, but experts now suggest that would not be enough, according to a U.S. News and World Report article.
Experts traditionally suggested retired people withdraw 4 percent of their savings each year. That would leave a retiree who has a $1-million nest egg about $40,000 to spend annually. On average, adults 65 and older spend almost $46,000 a year, according to a GoBakingRates survey. With those same withdraw rates in mind, the average retiree would need to save closer to $1.15 million before leaving the workforce.
Many Americans aren’t ready for that reality. According to GoBankingRates, 42 percent of Americans have less than $10,000 saved for retirement and 14 percent have nothing saved.
Saving for the end of a career may be intimidating—but here are tips to help you save for retirement:
Start now. The earlier you can start saving for retirement, the better prepared you’ll be. The longer money sits in a savings or money market account, the more earnings it will generate. Ideally, consumers should begin saving for retirement as soon as they receive their first paycheck in their 20s. But, if that’s not your reality, it’s important to begin saving as soon as you’re able.
Automate your savings. It can be difficult to put away money for a retirement that can be decades away when you’re focused on affording the present. Consider setting up retirement savings to pull directly from each paycheck. The money will never hit your checking account and you’ll be less inclined to spend it on daily necessities.
Increase savings with increased funds. While it can be beneficial to automate your savings, it’s equally as important to revisit your retirement account contributions over time. If you receive a raise, for example, consider increasing the amount you’re contributing to your 401(k). In addition, consider saving a portion of the money from any bonuses or tax refunds you receive throughout the year.
Make sure you’re getting your company’s match. If your employer offers a match to your employee retirement plan, make sure you’re contributing enough to receive it. If your employer doesn’t match or even offer a retirement plan, speak with a licensed professional to determine what type of retirement account would be best suited for your needs.
Take advantage of government aid. The U.S. government provides incentives for those saving for retirement. For instance, middle or lower-income taxpayers can claim a tax credit for up to 50 percent of their retirement plans. The maximum credit is $4,000 per couple and $2,000 per individual filer. You can also take advantage of catch-up contributions if you’re age 50 or older. Yearly contributions to IRAs and 401(k) plans are limited, but once you reach 50, you’re eligible to contribute beyond those limits.
Seek help. There are online resources available to assist you in knowing how to save and how much. AARP has a retirement calculator available that can help determine whether you’re on a good track, for example. Consider hiring a professional financial advisor or go to your financial institution. Credit unions often employ financial advisors who can help discuss your lifestyle needs, income goals, retirement goals, health issues, and any concerns you may have to help you determine what is the appropriate amount to achieve your goals.