With today’s troubled times and people looking to beat the ever rising costs of living, many don’t have the thought of retirement on their mind. Between rent or a mortgage, rising monthly bills, and all the other everyday costs, it makes it hard for most to save and plan for the future. People view the thought of retirement as intimidating and are always worried that they might not be able to save for their futures.
The thing that scares many people when it comes to retiring is that they do not plan accordingly. Most assume that they need a savings account and they should put most of what they want to save into it. Having a plan and being aware of what you need to do to achieve your goals is a huge first step. Some things that are necessary to figure out first are: What age do I want to retire, how much money do I need to comfortably retire, and also what will be reliable sources of income for me?
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What age do I want to retire?
This is an important question for all retirement plans. The age a person wants to retire is completely up to them. What needs to be considered is how much money you will have and by what age will I have it. If you feel that you can maintain the life you want with whatever money you have, then why not retire whenever you want.
How much money is needed to retire comfortably?
Once again, this is for the individual to decide as there is no set amount of money that is needed to be saved before you can retire. Assuming most people will start to save for retirement around the age of 25, and 65 is a good age to consider retirement, so you would have been saving for 40 years or so. A good amount to have saved into a 401k would be roughly $750,000. That amount is solely an idea of what might be needed to retire in comfort. Based on the person, this number could be less or more depending on lifestyle and needs. One major thing that people looking to retire need to factor is medical bills and expenses. As you get older you will have medical bills and they can sometimes be quite costly. People need to set aside a nice amount to be able to pay for things such as this as well as “end of life” expenses.
What are reliable sources of income?
Unless you plan on retiring with a pension, you will need to figure out where your income will be coming from. For most retirees, their 401k or other types of savings plans will be their main sources of income. Many who retire will keep part-time jobs as a source of income. The money they make doing this will not pay all the bills, but it will help out immensely.
When it comes to savings and figuring out what works best for you and your goals, you need to figure out which method you would like to go with, as there are different options to consider. The options for saving all have their pros and cons, so you would have to decide what would be the best route for you to take:
- 401k This is the savings plan that most companies have for their employees that allows them to save for retirement. The money put into this type of account would be withdrawn from the employee’s paycheck before taxes. The good thing about a 401k is that the employer will contribute half or even an equal amount to what you put into it. There are some restrictions however, such as if you would like to take money out before the age of 59 and 1/2, then you will be taxed on ALL of the money by the IRS, and pay a 10% early withdraw fee.
- Traditional IRA This IRA is an account that is exempt from deductions at the point of deposit. The downside of this however is that when withdrawn, you will have to pay a federal income tax on the IRA. These types of IRAs will allow you to build interest on your deposits and will receive tax benefits.
- Roth Ira A Roth Ira is similar to the Traditional IRA except that you cannot receive a tax break. Unlike Traditional IRAs, a Roth allows for a tax break at the time of withdrawal and you are not required to make at least one monthly withdrawal, unlike other accounts like the 401k.
Planning for retirement can be intimidating, but with the proper planning and decision making, you can have a great life when the time comes that you would like to stop working. Knowing little things such as the age you plan on retiring at, how much money you think you’ll need to have saved, and how you will be getting your income are all important aspects of a successful retirement plan. There are numerous ways to go about saving for retirement, decide which is right for you.
Mark Scheets is a writer for Total Mortgage Services.