“How can I afford retirement?” It’s a question that probably crosses everyone’s mind at some point. In fact, having insufficient retirement funds is the single biggest financial worry of 66 percent of Americans.
Unfortunately, far too many people leave this issue as something to worry about and fail actually to make a plan to be financially successful in retirement. However, it’s never too late to plan your retirement savings strategy. Even if you’re already in your 50s, you still have a good 10 or 15 years to save, and that can make a meaningful difference.
If you want to make sure you’re financially stable in retirement, here’s a look at some tips that will help you prepare, and you can implement some of them right away.
#1. Get Started
One of the most important parts of making sure you’re ready for retirement is to get started saving. Now. Thirty one percent of working adults say they have no retirement savings at all. And while that number does decline as age increases (90 percent of working adults over the age of 45 have at least something saved for retirement), it’s still true that some working adults haven’t saved anything at all.
If you feel like it’s too late to start saving for retirement, don’t underestimate how quickly a nest egg can grow. If you want to catch up and you’re still working, contribute as much to your 401(k) as you possibly can.
#2. Be Debt Free
It doesn’t matter if it’s credit cards, a vehicle, or a private loan, debt can be crippling at any age, and especially tough in retirement. As you approach retirement, make an aggressive effort to pay off any debt and to avoid taking on any new debt.
According to a recent study, 42 percent of Americans age 56 to 61 have debt, with an average amount of $17,623. If you take out the seniors who only have mortgage debt, the average load still sits at almost $12,500, with about $5,000 of that being credit card debt.
In a time when you’re going to be making less money than you did in your working years, debt can be a tremendous burden. Do everything you can to make sure it won’t be holding you down.
#3: Choose A Strategy For Your Mortgage
A home mortgage is indeed a debt, and while we just recommended paying off all debts, there are two different schools of thought when it comes to having a mortgage in retirement. The first is that you should make it a priority to pay off your mortgage before you retire. If you’re within about 10 years of retirement age, this is probably the strategy you want to use.
But if you’re a little farther away from retirement, you might want to consider paying off your mortgage as scheduled and investing any extra funds or use the money to pay off debt. Your potential earnings will likely be more than the interest paid on your home loan if you invest, and as discussed in the previous tip, it’s a smart move to get rid of debt before you are living on retirement income. A mortgage provides a tax benefit through the interest deduction, which is something that can be useful in your working years.
If you’re considering a reverse mortgage, be sure to read our reverse mortgage guide as you start your research.
#4. Create A Spending Plan
Budgeting is a crucial step toward financial peace at any age, but it is even more important in retirement. Experts have a few tips for building that retirement budget:
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Plan on spending about 4 percent of your retirement savings every year, which should make your savings last about 25 years.
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Instead of planning a budget based on a single month, take a look at your last 12 months of expenses combined to get a realistic idea of what you’ll be spending.
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Budget for the “big three” separately. The US Department of Labor recommends that in retirement, you should spend no more than 34 percent of your money on housing (including utilities, maintenance and insurance), 16 percent on transportation, and 14 percent on healthcare. Estimate what you will be receiving in retirement and make sure what you’ll be spending lines up with these numbers.
#5. Consider Retiring Gradually
The notion of retirement can be alluring, but many people end up with a sort of buyer’s remorse when they retire and see that they can barely afford to live. Therefore, more and more Americans are choosing to retire gradually. Here are some of the top ways to retire gradually.
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Be a valuable employee Companies invest a lot of time, money and resources into finding good employees so most want to keep quality staffers for as long as possible. Become one of those key employees.
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Find a part-time need for your skills If your company doesn’t have a need to keep you on full time, try to find a reason they can use you part time. For example, if you’ve been a sales manager for 30 years at your company, you’ve gained a lot of knowledge about sales operations specific to that company. Inquire about taking on a sales onboarding role to help onboard new hires.
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Make a financial case Hiring and training a new employee takes time and money. If you want to retire gradually, you have a good financial case to present to your company. If your job can be done remotely or even part-time, that just adds to your case.
#6. Don’t Expect Social Security To Cover It All
According to the AARP, almost a quarter of Americans plan for Social Security to be 90 percent of their retirement income. With the average Social Security payment is right at $1,400 a month, it is not hard to see why so many senior citizens struggle. If you are looking toward retirement with a plan of relying on Social Security, you may need to reassess. Decide now to fund a 401(k) or IRA. As stated earlier, it’s never too late to start saving. Also, you can delay taking your Social Security payments. By pushing receipt of Social Security to age 70, you will receive 130 percent of the benefit amount you would have at standard retirement age.
The Bottom Line: Get Started
Preparing for retirement can be overwhelming, and the numbers may be scary. However, with just a little planning, you can make a significant impact on your financial stability going into retirement. Start now, eliminate debt, and push your retirement age if necessary to be comfortable in your senior years of life.