Planning for your retirement is the best way to ensure you'll live comfortably after you retire. Although it's never too late to begin saving, the earlier you get started the more time your money has to grow. In addition to retirement plans provided by employers, there are other ways to boost your retirement dollars. Options include opening an Individual Retirement Account, delaying the age you retire, and working part-time during retirement. The information provided in this section can help you form a retirement plan that's right for you.
Planning Your Life in Retirement
Deciding on what age to retire will help you determine the amount of money you'll need in retirement. Early retirement will require more savings, while delaying retirement will result in more savings and may increase Social Security benefits. You should honestly consider how you want to live in retirement, whether traveling, engaging in volunteer work, devoting time to hobbies, or working part-time. It's a good idea to determine how much these various activities will cost in retirement savings and then calculate how much you need to save to supplement Social Security and other sources of retirement income. A worker should save about 15 percent of their income toward retirement and should anticipate needing almost 80 percent of their annual pre-retirement income to live comfortably.
Saving for Retirement
There are many options in saving for retirement, including contributing to a 401k plan, opening an IRA account, and opening a Roth IRA account. Contributing to a 401k gives you an immediate tax deduction, tax-deferred growth on your savings, and, usually, a matching contribution from your employer. Like a 401k, IRAs offer tax breaks. A traditional IRA offers tax-deferred growth, meaning you pay taxes on your investment gains only when you make withdrawals, and your contributions may be deductible. A Roth IRA doesn't allow for deductible contributions but does offer tax-free growth, meaning you don't owe taxes when you make withdrawals.
Other options include contributing to a Keogh plan, contributing to a 403b plan, opening a SEP or Simple IRA account, and contributing to a 457 plan. A Keogh plan is similar to a 401k plan, but is intended for self-employed people and is generally more limited in contributions that can be made. 403b plans are generally used in the education sector, SEP and Simple IRAs are set up for business entities, and 457 plans are generally used by state and local governments and tax-exempt organizations.
Collecting Social Security
Social Security benefits are based on a person's lifetime earnings and retirement age. If eligible, you may begin receiving Social Security benefits as early as age 62. Retiring early, however, can reduce benefits. The amount of reduction depends on your full retirement age. Delaying retirement beyond your full retirement age increases benefits by a certain percentage each year. Once you reach age 70, however, benefits no longer increase.
Learn About Tips for Retirement Planning
Retirement should be a wonderful time of life, but it can be a very difficult experience for those who don't plan accordingly. The key to a successful transition into retirement is planning ahead and being specific. Developing a comprehensive plan for your life in retirement can be challenging. This section provides tips and resources to help you live comfortably throughout your golden years, as well as tips on how to manage your money before you retire. Select from the titles below to learn more.