One keystone goal in retirement planning is to know how much to save for a decent retirement lifestyle.
Conventional wisdom among investment professionals is to aim to replace approximately 80 percent of your pre-retirement annual income to keep living as comfortable after retirement as you were before retirement. For example, if your workplace paycheck amounted to $100,000 each year, you'd require $80,000 of savings annually to keep your current financial lifestyle intact. What's the best way to get that job done?
Stay on the right path with these five retirement savings keys.
Build a comprehensive savings plan, and stick to it. This should be obvious, but most Americans don't adhere to a solid retirement plan process. According to a recent study by the National Institute On Retirement Security, 45 percent of American households have no retirement plan.
"This is one major piece where a majority of everyday investors fall short," says Ryan Kwiatkowski, director of marketing at Retirement Solutions in Naperville, Illinois. "Even people who do save think they can contribute to my 401(k), and once retired, can live off of that amount, plus Social Security. Is that money going to be enough? What happens if the next 2008 happens the year before you retire, or during your first year or years of retirement? Are you going to need to save some additional money?"
This simple step in planning to achieve a goal is often overlooked. "How will you know when you reach your retirement goals if you never built a plan in the first place?" Kwiatkowski says.
Take advantage of employer matching. You'd be shocked to learn how many Americans are unknowingly declining offers of free retirement contributions from their employers through 401(k) or 403(b) retirement plans.
"For example, if you contribute 5 percent of your salary to your retirement plan offered by your employer, they agree to match your 5 percent with their own money," says Rodger Friedman, a retirement planning specialist and author. "If you contribute $250, your employer would match it with a $250 contribution. That's a 100 percent return before the funds are even invested."
Pay yourself first. "Contribute at least 10 percent of your pre-tax income to your employer retirement plan," says Dennis McNamara, a financial planner at Lighthouse Financial Advisors in Red Bank, New Jersey. "By paying yourself first, the money is invested and set aside for the long-term goal -- being financially independent -- before you ever have the opportunity to spend it." Couple that move with maxing out on your 401(k) every year you work, and you'll be well set up for retirement, he says.
Save like you'll live to 100. Plan on having your cash outlast you, says Ron Kloth, a money manager at Dynamic Wealth Advisors, in Tempe, Arizona. "With life expectancy rates increasing, it's important to plan for a long enough period of time so that you don't run out of money too soon," he says. "I use the age of 100 as my default number when setting up financial plans as few people will outlive that number."
Make sure you have multiple baskets of cash from which to be able to pull from, he says. "Having money invested in different types of accounts (401(k)s, traditional IRAs, Roth IRAs and taxable accounts) will give you added flexibility, in a tax-advantaged way."
Know what you'll be spending in retirement, especially on health care. "Get a handle on what current expenditures will continue into retirement," says Veronica Welch, owner of CWR & Partners near Providence, Rhode Island. "Make sure you don't underestimate the impact of inflation, and understand how things like rising, non-reimbursed health care costs will need to be met, as well."
Additionally, put together a full or holistic plan that addresses key issues such as paying for long-term care. "Recent news about further cutbacks in Medicaid could make things brutal when it comes to people being able to take care of themselves when they get disabled," Welch says. "Few people are addressing this problem and there are ways to do so without necessarily buying insurance."
By covering these five areas in your retirement planning campaign, you'll significantly increase your odds of having the retirement you've dreamed about. That should be incentive enough to redouble your efforts, as you inch closer to that first day of retirement, whether that's a few years, or even a few decades, from now.
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