After working 40 or 50 years, you could find yourself retired for another 20 or 30 years. To support yourself without a job for 20 or 30 years, you should probably be planning for retirement during your entire working life. However, your concerns and strategies for retirement will change as you age. Consider these tips:
In Your 20s
While you may just be getting started in your career, don't squander the long time period before retirement that can help your retirement funds grow and compound. Some strategies to consider include:
Start saving for retirement now. Saving even small amounts can help you accumulate significant sums by retirement age. For instance, if you invest $2000 per year from age 25 to age 65 in a tax-deferred account earning 8% per year, you could accumulate $518,113 by age 65. (This example is provided for illustrative purposes only and is not intended to project the performance of a specific investment vehicle.) Try to save at least 10% of your income, but if you find that difficult to do, at least start saving something. Get in the habit of saving at a young age, before you get used to spending all your income.
Investigate different retirement savings vehicles. If your employer offers a 401(k) plan, start contributing as soon as you can. You should at least contribute enough to take full advantage of any matching contributions offered by your employer, which can significantly increase your savings. For instance, assume you earn $50,000 per year and your employer matches 50 cents on every dollar of contributions up to 6% of your salary. If you contribute 6%, you will make a contribution of $3,000 and your employer will contribute $1,500. If your employer doesn't offer a 401(k) plan, contribute to an individual retirement account (IRA), either traditional or Roth. Investigate the differences to determine which is better for your situation.
In Your 30s
Typically, even though your income is rising, your expenses are also growing as you buy a house and start a family. However, don't lose sight of retirement, since you still have significant time before retirement to help your funds grow. Consider these tips:
Start thinking about retirement. Give some thought to how you want to spend your retirement and how much it will cost. While you may feel that retirement is too far away to gauge these things, putting a rough price tag on your retirement and calculating how much you need to save can provide significant motivation in saving for that retirement.
Devise strategies to keep saving. Look for ways to remain committed to saving, even as your expenses are increasing. For instance, whenever you receive a raise, put some of it into your 401(k) plan so you don't get used to spending the money. Before incurring a large new expense, such as a new car or home, look at the impact the additional expense will have on your retirement.
In Your 40s
While you still have quite a while before retirement, it's time to get serious about saving. Especially if you haven't saved much during your 20s and 30s, you need to really commit to saving for retirement. Some tips to consider include:
Contribute the maximum to your 401(k) plan. Don't make excuses; just make sure you are saving the maximum in your 401(k) plan. Also look at saving in an IRA.
Review your investment strategy. Take a look at all your investments, both inside and outside of retirement accounts. Does your strategy make sense, and will it help you reach your retirement goals?
In Your 50s
Retirement is no longer that far away. It's time to assess where you stand and whether your retirement plans are realistic. Consider these tips:
Look seriously at your retirement plans. Make sure you have an accurate assessment of how much money you'll need in retirement and compare that to your estimated retirement income sources. If you are short, consider revising your plans. You may need to work longer, scale back your retirement plans, or save more.
Take advantage of catch-up contributions. In addition to making the maximum contributions to 401(k) plans and IRAs, take advantage of catch-up contributions once you turn 50. In 2007, you can make a $5,000 catch-up contribution to a 401(k) plan, if permitted by your plan, and a $1,000 catch up to an IRA.
Try to ratchet up your savings. By now, hopefully, some of your large expenses will be behind you, such as funding a child's college education, and you can divert those sums to your retirement savings.
In Your 60s and Beyond
This is the period when people typically transition from a working life to retirement life. Some strategies to consider include:
Finalize your retirement plans. Go through your expenses and expected retirement income sources one more time to make sure you haven't forgotten anything. Determine when you can start drawing retirement benefits, such as Social Security, Medicare, and pension plans. Before you leave your job, make sure the timing is right and you'll be able to comfortably support yourself during retirement.
Plan before withdrawing your retirement savings. Before you start taking withdrawals from 401(k) plans and IRAs, consider all relevant factors. You don't want to drain those funds too quickly.
Consider working on at least a part-time basis. Even if you think you have sufficient funds for your retirement, consider working at least part-time during the early years of your retirement. This will help keep you active, while also supplementing your retirement savings. It is better to work now than to find out late in retirement, when your health may not permit you to work, that you have run out of retirement savings.
To ensure adequate retirement savings, you need to plan for retirement throughout your life. Please call if you'd like help with this process.