If you haven’t planned financially for your retirement, you are not alone. One study from Time Magazine found that one in three Americans have saved $0 for retirement. An additional 23% have saved less than $10,000. About 75% of Americans over 40 are behind on their retirement savings.
These numbers can be concerning. Here are some steps to help you start saving for your retirement.
- Estimate Your Needs
There are several guides to help you decide how much you will need in retirement. One helpful source is the United States Department of Labor Savings Fitness Guide. It provides some advice on how to determine the amount you should save based on your current lifestyle and life expectancy. Remember though that these are general rules. You need to factor in your own situation. Don’t let a huge number from an article scare you. Instead, plan based on your assets and on ways you can reduce ongoing spending.
- Determine Your Resources
Your sources of retirement income may come from several savings sources. These include retirement plan accounts at work, IRAs, social security and personal savings.
Your home is one of your major savings vehicles. Making your mortgage payment each month is a type of forced savings. Even better, the gain in your home equity may not be taxed, but consult a tax advisor to learn more. This is one of your best tax shelters. The Taxpayer Relief Act of 1997 modified the tax rules so that now you can make a profit of $250,000 as a single owner or double that if you’re married and not be subject to capital gains taxes. And there is no limit; you can make these tax free profits each time you sell your home. The rules no longer require you to spend the proceeds on your next home to avoid capital gains, so gains from your home sale can be a source of funds for your retirement.
- Begin Saving
Each month put an amount into savings for your retirement. Start small if necessary. Keep in mind that your house payment is one of the steps to saving. Even a small amount of savings will grow over time, especially given the power of compounding interest. Add to your savings amount as you can. Make your retirement savings a priority if it’s possible and within your means.
- Revise Your Retirement Annually
You may want to work with a financial planner to revisit your goals and savings plans, as well as your assumptions.
Close to Retirement Age Now
If you’re close to retirement age now but you don’t have much saved, start planning from where you are now.
- Review Your Budget
Eliminate unnecessary expenses and look for small ways to save daily.
- Checkout Senior Benefits
There are a lot of programs for seniors that provide reduced rates, free admissions or help with food and medical costs. Organizations such as AARP or BenefitsCheckup.org can help you find senior benefits.
Move to a smaller house or become a renter, putting your home equity and lower utility costs into retirement savings. Move close to public transportation and sell your vehicle or at least make it last longer.
- Move to a Lower Cost Area
If you’re in an expensive part of the United States, consider moving to a more affordable location if possible.
- Work Longer
Delay retiring if you’re capable of doing so. If you work after you’ve reduced your cost structure, you can add to your savings even more easily.
Remember, every little bit helps.