Experienced a pay cut? Here’s what to do next:
- Discuss a plan with family members
- Adjust your budget or create a new one
- Trim non-essential expenses
In a perfect world, you’ve been saving a large portion of your salary every year in a retirement account. That money has been earning interest and you’ll be able to retire comfortably, maybe even early. The reality of retirement, however, is sobering. 68% of individuals aged 55 to 64 have retirement savings far below what they’ll need for their expected years in retirement, according to the National Institute on Retirement Security.
No matter how close you are to retirement or how little you have saved up, it’s never too late to take immediate action. Social Security and Medicare will most likely not be enough to cover your retirement expenses, so start saving and budgeting your money. Consider these tips when planning your retirement.
1. Pay off any high-interest debt as quickly as you can to clear the way for savings.
2. Find ways to shave dollars from your daily expenses so you have more money to contribute to savings. This involves reducing discretionary expenses and making lifestyle changes to free up cash.
3. Put extra money you receive toward savings, such as: tax refunds, salary increases and bonuses.
4. Increase your earnings before you take full retirement. Take a second job, for a few additional years or prepare for a part-time job during your early retirement.
5. Target a savings rate outside of your comfort zone. Recognize that this will require exceptional discipline, especially if you have been saving little to nothing so far.
68% of individuals aged 55 to 64 have retirement savings far below what they’ll need for their expected years in retirement.
6. Contribute the maximum amount allowed for you to your IRA (Individual Retirement Arrangement) and/or 401(k) every year. You may want to contact a financial advisor or tax professional for further information on your specific situation. If you have matching contributions from your employer, be sure you take advantage of this benefit. These investment plans may also give you tax savings now or when you start withdrawals, depending on your choice of plan type.
7. You may be able to contribute up to $1,000 more to your IRA for yourself and your spouse if you are age 50 or older. You can make catch-up contributions to your Traditional or Roth IRA in accordance with the IRS’ income rules. Catch-up contributions (as well as regular contributions) to an IRA are due by the due date of your tax return (not including extensions).
8. Check with the Social Security Administration PDF opens in new window. to understand how your retirement start date impacts benefits. The later you start drawing benefits prior to age 70, the larger your monthly benefit will be. No matter when you retire, be sure to sign up for Medicare three months before you reach age 65.
9. Explore Traditional and Roth IRAs to get the best tax treatment based on your expected income levels over time.
10. Investigate your eligibility for the Saver’s Credit, formerly called the Retirement Savings Contributions Credit, available to some low-to-moderate income families to match a portion of your IRA or employer-sponsored retirement plan.
While retirement is a lifetime goal for many people, some arrive unprepared. Once you begin to make changes and start saving, you may be surprised by how quickly your retirement funds add up. Don’t delay the process.
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