Financial security in retirement doesn’t just happen. …
It takes planning, commitment, and yes, money.
1. Start Saving, Keep Saving, and Stick to Your Goals
If you are already saving, whether for retirement or another goal, keep going! You know that saving is a rewarding habit. If you’re not saving, it’s time to get started. Start small if you have to and try to increase the amount you save each month. The sooner you start saving, the more time your money has to grow (see the chart below). Make saving for retirement a priority. Devise a plan, stick to it, and set goals. Remember, it’s never too early or too late to start saving.
2. Know Your Retirement Needs
Retirement is expensive. Experts estimate that you’ll need about 70 percent of your pre-retirement income—lower earners, 90 percent or more—to maintain your standard of living when you stop working. Take charge of your financial future. The key to a secure retirement is to plan ahead.
You can start by reading these publications from the U.S. Department of Labor: Savings Fitness: A Guide to Your Money and Your Financial Future, and for those near retirement, Taking the Mystery out of Retirement Planning.
3. Contribute to Your Employer’s Retirement Savings Plan
If your employer offers a retirement savings plan, such as a 401(k) plan, sign up and contribute all you can. Your taxes will be lower, your company may kick in more, and automatic deductions make it easy. Over time, compound interest and tax deferrals make a big difference in the amount you will accumulate. Find out about your plan. For example, how much would you need to contribute to get the full employer contribution and how long would you need to stay in the plan to get that money.
4. Learn about Your Employer’s Pension or Plan
If your employer has a traditional pension plan, check to see if you are covered by the plan and understand how it works. Ask for an individual benefit statement to see what your benefit is worth. Before you change jobs, find out what will happen to your pension benefit. Learn what benefits you may have from a previous employer. Find out if you will be entitled to benefits from your spouse’s plan.
More information is available by reading the U.S. Department of Labor’s publication about protecting your pension: What You Should Know About Your Retirement Plan.
5. Consider Basic Investment Principles
How you save can be as important as how much you save. Inflation and the types of investments you make play important roles in how much you’ll have saved at retirement. Know how your savings or pension plan is invested. Learn about your plan’s investment options and ask questions.
Put your savings in different types of investments. By diversifying this way, you are more likely to reduce risk and improve return. Your investment mix may change over time depending on a number of factors such as your age, goals, and financial circumstances. Financial security and knowledge go hand in hand.
6. Don’t Touch Your Retirement Savings
If you withdraw your retirement savings now, you’ll lose principal and interest, and you may lose tax benefits or have to pay withdrawal penalties. If you change jobs, leave your savings invested in your current retirement plan, or roll them over to an IRA or your new employer’s plan.
7. Ask Your Employer to Start a Plan
If your employer doesn’t offer a retirement plan, suggest that it start one. There are a number of retirement savings plan options available. Your employer may be able to set up a simplified plan that can help both you and your employer.
For more information, read the publication that is available from the U.S. Department of Labor: Choosing a Retirement Solution for Your Small Business.
8. Put Your Money into an Individual Retirement Account
You can put up to $5,000 a year into an Individual Retirement Account (IRA); you can contribute even more if you are 50 or older. You can also start with much less. IRAs also provide tax advantages.
When you open an IRA, you have two options—a Traditional IRA or a Roth IRA. The tax treatment of your contributions and withdrawals will depend on which option you select. Also, the after-tax value of your withdrawal will depend on inflation and the type of IRA you choose. IRAs can provide an easy way to save. You can set it up so that an amount is automatically deducted from your checking or savings account and deposited in the IRA.
9. Find out about Your Social Security Benefits
Social Security pays benefits that are on average equal to about 40 percent of what you earned before retirement. You should receive a Social Security Statement each year that gives you an estimate of how much your benefit will be and when you can receive it.
For more information, visit the Social Security Administration’s Website at www.socialsecurity.gov or call 1-800-772-1213.
10. Ask Questions
While these tips are meant to point you in the right direction, you’ll need more information. The U.S. Dept. of Labor has several publications listed below you can view online or call and request these brochures.(1) Talk to your employer, your bank, your union, or a financial advisor. Ask questions and make sure you understand the answers. Get practical advice and act now.
Publications: Savings Fitness: A Guide to Your Money and Your Financial Future, Taking The Mystery Out Of Retirement Planning, What You Should Know About Your Retirement Plan, Filing a Claim for Your Retirement Benefits, Women and Retirement Savings, and Choosing a Retirement Solution for Your Small Business.
The Advantage of Starting Early
Start now! This chart shows what you would accumulate after 5, 15, 25, and 35 years
if you saved $5,000 each year, and your money earned 7% annually.(2)
FACT 1: Fewer than half of Americans have calculated how much they need to save for retirement.
FACT 2: In 2009, 13 percent of those who had 401(k) coverage available didn’t participate.
FACT 3: The average American spends 20 years in retirement.
Putting money away for retirement is a habit we can all live with.
Remember … saving matters!
(1) Publications listed in number 10 in this article can be viewed at: http://www.dol.gov/ebsa/publications/10_ways_to_prepare.html (They are listed at the end of the article.)
Instead of going online, you can get any Employee Benefits Security Administration publication listed here by calling the U.S. Department of Labor at 1-866-444-3272. There is no charge. (Note that IRS Publication 590 about IRAs comes from the IRS, not EBSA.)
(2) 2010 IRA Contribution and Deduction Limits can be found at: http://www.irs.gov/retirement/participant/article/0,,id=188232,00.html
This entire article, including the figures on the chart and the Quick Facts, is based upon the U.S. Department of Labor’s article titled:Top 10 Ways To Prepare For Retirement, written in 2007, and Revised October 2010. It can be found at:http://www.dol.gov/ebsa/publications/10_ways_to_prepare.html
This is a hypothetical example and is not representative of any specific situation or investment product. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.