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If you’re like most working people, you’ve probably dreamed of the day when you can retire. But will you have enough money to take care of yourself once you stop working? Preparing now for your retirement is one of the smartest financial things you can do to take care of yourself into the future. In this article we’ll look at some basic strategies that may help you put aside enough money to retire in comfort.
Here’s what we’re going to cover:
- Preparing for retirement: Calculate your needs
- Create a retirement account
- The best ways to save for retirement: Owe less, earn more
- Delay Social Security
- Oportun: Savings products designed with you in mind
- The money you live on in retirement can come from various sources such as 401(k) plans, IRA accounts, pensions, other investments and savings, and Social Security payments.
- It’s smart to set aside enough money to last you 30 years. The sooner you begin, the easier it will be to save what you need.
- Sticking to a budget, keeping your debt low, and finding additional sources of income can all help contribute to your retirement savings.
- For most people, Social Security alone isn’t enough to live on. But by delaying your Social Security benefits until age 70, you will receive considerably more money each month.
Preparing for retirement: Calculate your needs
When it comes time to retire, you’ll want to have enough money saved to last the rest of your life. For most people, Social Security benefits alone aren’t enough to live on.
How much money will you need? That depends on how much you spend and how long you live. People are living longer these days, thanks to healthier habits and advances in medical care. That’s why it’s smart to start early and save as much as you can for your retirement years. Some experts recommend having at least 10 times your annual income put aside for retirement.
Another way to calculate is by adding up your yearly costs for housing, food, health care, transportation, and other essentials. (Remember that these costs will probably increase over time.) Multiply that number by 30 to get an estimate of your expenses for a comfortable retirement.
Once you have an idea of how much money you will need, the next step is to begin building your retirement savings. You’ll want to decide on an approach to saving, whether it’s automatic transfers from your paycheck, using a savings app that can help determine when and what to set aside, or other method.
Create a retirement account
It’s a good idea to start a retirement account while you’re still young. The longer you have an account, the more interest it will earn and the more years your savings will have to grow. The small, regular contributions you make now may be worth many thousands of dollars later.
Two of the most popular retirement plans are the 401(k) and the IRA. Both plans allow you to pay less in taxes than you would with an ordinary savings account. That means you get to keep more of the money you earn.
A 401(k) is a retirement savings account offered by some employers. You do not pay taxes on the income at the time of putting the money into the account, but you will pay taxes on that income later, when you use the money. Having the taxes deferred until later lets you contribute a larger part of your income. Some employers will even match your 401(k) contributions, so you get twice as much money put away. Check with your employer to see if they offer this program.
IRA stands for individual retirement account. Traditional IRAs and Roth IRAs let you contribute post-tax income to your savings. If you wait until retirement to withdraw this money, you won’t have to pay any more tax on it. That means your savings can collect interest that isn’t taxed.
The best ways to save for retirement
Spend within your means
In order to save as much money as possible for retirement, you’ll want to spend only what you can afford. Try creating a realistic budget to help you understand how much flexible income you have to spend each month. Some of your retirement savings will come from that flexible income, so you’ll have to practice discipline to not spend it.
If you struggle with paying off your credit card in full each month, consider switching to cash or checking with your credit card company if they offer a setting to restrict how much you can put on the card. If you already carry a lot of debt, you might want to consider a debt consolidation plan. Money that you currently spend toward debt interest could be money that you put toward retirement.
Another strategy to add to your retirement savings is to boost your income. It could be through a second job, a freelance gig, promotions, switching companies, or switching careers. Many people find it profitable to drive for a ride-sharing company, offer community services like dog walking or babysitting, or sell off items they no longer use. Consider the endless amount of free educational materials online to enhance your skillset, or even investing in a training program that employers will find valuable. You can get creative about adding to your income based on the amount of time you have and what you’re interested in.
Delay Social Security
While the full retirement age for Social Security is 66 or 67 for most people, it’s possible to begin collecting your benefits at age 62. But many experts recommend waiting until age 70 to begin taking payments. Why? By delaying a few more years, you could end up with as much as 76 percent more in Social Security benefits each month. This can make a big difference to your financial situation.
You may also want to talk with a financial advisor about developing your retirement plan. They may be able to suggest investments or other strategies that can increase your savings.
Oportun: Savings products designed with you in mind
Now that you understand what it takes to plan for retirement, you can learn about how Oportun may be able to help you if you’re looking for an effortless way to save. Visit our homepage to learn about:
- Personal loans
- Secured personal loans
- Credit cards
- And more!
Investopedia. How much I need to save to retire?
Experian. How to plan for retirement
Investopedia. 401(k) vs. IRA: What’s the difference?