Ways to Build a Simple Retirement Plan Like the Pros
Saving for retirement can be difficult. It is more difficult to plan how to spend this nesting egg – while ensuring that the money does not run out.But there is good news: Americans can build a simple, inexpensive retirement plan using only social security and savings, experts say.
To have a comfortable, secure—and fun—retirement, you need to build the financial cushion that will fund it all. The fun part is why it makes sense to pay attention to the serious and perhaps boring part: planning how you’ll get there.
Planning for retirement starts with thinking about your retirement goals and how long you have to meet them. Then you need to look at the types of retirement accounts that can help you raise the money to fund your future. As you save that money, you have to invest it to enable it to grow. The surprise last part is taxes: If you’ve received tax deductions over the years for the money you’ve contributed to your retirement accounts, a significant tax bill awaits when you start withdrawing those savings. There are ways to minimize the retirement tax hit while you save for the future—and to continue the process when that day arrives and you actually do retire.
When should I start saving for retirement?
The answer is simple: as soon as you can. Ideally, you’d start saving in your 20’s, when you first leave school and begin earning paychecks. That’s because the sooner you begin saving, the more time your money has to grow. Each year’s gains can generate their own gains the next year – a powerful wealth-building phenomenon known as compounding.
Talk with your spouse or significant other about retirement spending
Be open with your spouse or significant other about how much you think you should, and will, spend in retirement so that you’re both on the same page. Just as couples discuss buying a new car or a house while working, it’s always a good habit to talk through financial matters in retirement as well.
Create a budget and follow it
The best way to plan a budget is to know how much you can spend. But alas, most people don’t bother to calculate how much they can safely spend in retirement. If you need help starting out, meet with an investment professional, like the majority of people who said they calculated their annual spending in retirement. An investment professional can provide additional insight and tools to help you stay on track with your plan.
Set up Automated Deposits to Your Retirement Savings
Automating deposits into your retirement savings is an easy way to get started with building up your retirement nest egg. Once you’ve budgeted how much you can afford to save each month for your retirement, you can automate a payment for that amount so you won’t forget to make a contribution.
Another benefit of automating your payments is that the money gets funneled directly into your retirement fund, so you won’t get a chance to spend it. You won’t even realize the money is “missing” from your account so before you know it, you would have saved up a good amount of money for your retirement.
Find a Job with Good Retirement Benefits
If you’re thinking about switching jobs, it pays to consider positions that offer a retirement plan as part of the compensation package. Many companies offer a retirement matching plan, in which they match your retirement contributions (often deducted from your paycheck) up to a certain amount. If this is something your company offers, make sure you participate in it, because you’re essentially getting free money!
If your company doesn’t offer a retirement plan, don’t let that stop you from starting one on your own. You can open up a savings account and automate payments to coincide with your paydays. Although your contributions won’t get matched, however much you contribute will make a big difference in the grand scheme of things, and you’re setting into motion some good financial habits.
Just get started
Perhaps the simplest task is to just start saving, even if it’s only a few dollars. Millennials, in particular, say they face this problem — they’re unable to start saving for retirement because they’re paying off massive amounts of student debt, have low wages, or are struggling to make ends meet with their rent and bills.
But starting early, or at any point that you’ve realized you haven’t got much saved, makes all the difference for future assets. Some financial experts suggest putting away even just $5 or $10 a month, if that’s all someone can do, to get into the habit of saving for retirement.