Retirement is the No. 1 financial goal of most Americans. But for many people, that goal is seemingly based more on aspiration than actual action. According to the Center for Retirement Research at Boston College, approximately half of those who retire at age 65 will be unable to maintain their preretirement lifestyle. We know you want to be in the other half. Here’s how.
- Save 15% a Year.
- Save More Than 15%!
- Sweat the Big Stuff.
- Housing:According to the Department of Labor, housing expenses eat up a third of the average budget. Buying or renting only as much space as you actually need, and in locations that are not highly priced, can free up hundreds of dollars each month.
- Transportation:According to Kelley Blue Book, the price of a new car is almost $40,000. Consumers are taking out bigger, longer-term loans to afford these cars, and in many cases still owe money on a car when they replace it. The key to driving down these costs: Buy small to midsize fuel-efficient vehicles, and keep them for 10 to 15 years. Getting a car to 200,000 miles saves $30,000 on average, according to Consumer Reports.
- Food:According to the Department of Agriculture, Americans waste 30% of the food they buy. Since the average household devotes 13% of its budget to food, that’s almost 4% of annual earnings going in the trash.
Source: Getty Images
- Maximize Your Retirement Accounts.
- Traditional IRA/401(k)/403(b)/TSP:Contributions might lower your taxable income, resulting in a lower tax bill in the year of the contribution. Plus, you won’t owe taxes on the interest, dividends, or capital gains generated by your investments in the account each year. But withdrawals from the account are taxed as ordinary income.
- Roth IRA/401(k)/403(b)/TSP:You receive no tax benefits on contributions, but investment returns and withdrawals are tax-free as long as you follow the rules.
- Make Your Money Work for You.
- Large-cap stocks (such as those found in the S&P 500):2% average annualized returns
- Government bonds:5% average annualized returns
- Treasury bills (essentially cash):3% average annualized returns
Source: Getty Images
- Get Ready to Retire.
- Social Security:You can claim benefits as early as age 62, but the sooner you file, the smaller your monthly check. How much does it pay to delay? The payout increases 6% to 8% each year, up until age 70. In fact,studies suggest most Americans should wait until age 70 to claim Social Security…but alas, most don’t.
- A defined-benefit pension:If you’re among the fortunate minority who will receive a check every month from your former employer for the rest of your life, take time to understand the formula and your options. Does retiring later result in a larger benefit? Can you instead take the pension as a lump sum? Is the pension fully funded, or is there a risk that future payments will be reduced?
- Medicare:On average, employers cover 70% of the costs of health insurance. But once you leave your job, you’re on your own. Fortunately, Medicare — the health insurance program for retirees — kicks in at age 65. Before you retire, understand what Medicare covers, and whether you need supplemental insurance.
- Make Your Money Last.
- Get Help If You Need It.
Copyright © 2021