Setting Up Automatic Contributions Makes Saving Easy
Once you’ve opened your IRA, set up a monthly automatic deposit from your checking account to your IRA. A $6,000 yearly contribution comes out to $500 a month. If that’s more than you can manage, contribute as much as you can and try to add to it with any bonuses, raises or gifts. You actually have until the tax filing date of the following year to make your full IRA contribution.
Tackle Expensive Debt First
Just as there is bad debt, there may also be good debt. If all you have are good debts like car and mortgage, then you may be in good shape to build on your retirement savings, Poorman says.
If not, make a list of all your debt obligations and their associated interest rates. Debt with a higher interest ratesay, the typical credit cardshould be a priority. The interest you pay may be higher than the return youd earn on saving those same dollars, he says.
Pay more than the monthly minimum if you can. Once you pay off the highest interest rate debt, move to the next loan on your list. When youre all done? Consider putting that same amount that you allocated to debt repayment toward retirement savings.
Work With An Investing Professional
If youre late getting into retirement investing, theres still time to get back in the game. But its time to get intense and start putting habits in place that will help you get to where you need to go.
Thats why you need to work with an investing professional you can trust. Our SmartVestor program can connect you with an investing pro who can help you understand your options and come up with a plan to reach your retirement goals. Its time to stop making excuses and start making progress!
About the author
Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.
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Don’t Withdraw Too Much From Savings
Spending your savings too rapidly can also put your retirement income at risk. For this reason, we believe that retirees should consider using conservative withdrawal rates, particularly for any money needed for essential expenses.
We did the mathlooking at history and simulating many potential outcomesand landed on this guideline: To be confident that savings will last for 2030 years retirement, consider withdrawing no more than 4%5% from savings in the first year of retirement, then adjust that percentage for inflation in subsequent years.
Consider a sustainable withdrawal plan: Work with a Fidelity professional to develop and maintain a retirement income plan or consider an annuity with guaranteed lifetime income7 as part of your diversified plan, so you won’t run out of money, regardless of market moves.
Read Viewpoints on Fidelity.com: How can I make my retirement savings last?
Save A Percentage Of Your Income
Savers like my wife and I are definitely in the minority. Very few people save a substantial amount for the future, but if you think were in the minority, then check out Pete from MrMoneyMustache.com who advocates that you should be saving between 30 to 50% of your income. While thats definitely on the extreme side of things, Pete is just another example of how it can be done.
Granted, the more you make the larger a percentage you can save. The point here is to make some steep sacrifices so that you can put more of your wealth toward investments that are right for you.
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Work As Long As You Can
Gone are the days when folks retired at 60 or 62, says Sean Pearson, a CFP in Conshohocken, Pennsylvania. Some of his happiest clients work past 60 or 65 perhaps not in a high-stress, 40-to-50-hour-a week job but in something lower key. The SECURE Act of 2019 allows individuals with earned income to continue contributing to traditional IRAs even after turning 70 1/2. For every year you continue to earn income and save, that is one less year that your savings needs to pay for you in retirement, he says.
Patricia Amend has been a lifestyle writer and editor for 30 years. She was a staff writer at Inc. magazine a reporter at the Fidelity Publishing Group and a senior editor at Published Image, a financial education company that was acquired by Standard & Poor’s.
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Contribute To A 401 Plan
In 1978, Congress created what we now know as the 401 plan. Lawmakers named the plan for a specific section of the Internal Revenue Service Code. Originally, 401s offered taxpayers a break on deferred income. In 1980, businesses began realizing that the new tax code was an easy, tax-friendly way to create retirement savings accounts by allowing people to invest in the stock market. The money becomes available without any penalties when investors reach the age 62.
Employers soon began offering their employees 401 plans mainly because they were less expensive than traditional pension programs. Some employers even started contributing “free money” to each employee’s plan. As of 2008, there are more than 65 million 401 plans in the United States with more than $3 million in invested stocks, bonds and mutual funds .
In order to build a nest egg, financial advisers urge people to max out the amount they contribute each year. The maximum contribution in 2010 was $16,500 for those younger than 50. Those 50 years or older could contribute $22,000 . The more money a person puts into a 401, the more money that person will be investing in stocks, bonds and mutual funds, and their retirement.
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How To Make Money In Retirement: 14 Real And Really Easy Ways To Boost Income
Regardless of where you are in life, its always nice to make some extra money. And that is especially true in retirement. But, how to make money in retirement when youre supposed to be simply enjoying the easy life? The retirement gigs listed below wont be quite enough to cover retirement expenses, but they wont take up too much of your time, either. And, some options might even be fun!
Whether youre looking to subsidize retirement savings with a hobby or just want some extra spending cash, here are 14 ideas for how to make money in retirement.
Cut Down On Your Monthly Costs
By regularly reviewing the areas where you spend the most money, you can determine where to cut back to have a greater monthly cash flow in retirement. This could mean cutting back on eating out, expensive purchases or extravagant vacations. In an email to Annuity.org, Timothy Iseler of Iseler Financial LLC suggested:
I recommend a one-month spending fast, during which all expenses except the essential like housing, utilities, groceries, insurance premiums, and debt payments are paused. A month should be enough time to know which discretionary expenses will be easiest to control and highlight which others are most important.
Not only will you find that you have a better idea of what retirement will look like with the amount youll have, but youll also see which expenses are easier than others to eliminate.
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Check Out The Senior Job Bank
Just because were over 60 doesnt mean we arent dynamic and enthusiastic contributors to the world. Connect with employers who understand that and are actively looking for seasoned employees through Senior Job Bank. Its nice to feel appreciated for the talent and wisdom youve accumulated over a lifetime.
Create And Stay On A Budget
Budgets are wonderful planning tools that can give you a clear idea of what you own and what you owe. A budget allows you to keep track of your daily expenses, forcing you not to overspend . A budget is also a means to reach your goals. By projecting future expenses, and recording them when they are paid, you can adjust your spending or planning habits . If you keep on top of how much money comes in and goes out, you won’t feel like you’re living paycheck to paycheck. A budget allows you to keep your fingertips on what you are spending as opposed to what you want to spend. As such, a budget will change your spending habits and allow you to make comparisons from one month to the next. Make sure, however, that a portion of your monthly income goes toward savings.
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Managing Your Retirement Funds
It’s important to start saving for retirement as soon as you begin earning income, even if you can’t afford to save that much at the beginning. The sooner you begin, the more you’ll accumulate, thanks to the miracle of compounding.
Let’s say you save $40 per month and invest that money at a 3.69% rate of return, which is what the Vanguard Total Bond Market Index Fund earned across a 10-year period ending in December 2020. Using an online savings calculator, an initial amount of $40 plus $40 per month for 30 years adds up to just under $26,500. Raise the rate to 13.66%, the average yield of the Vanguard Total Stock Market Index Fund over the same period, and the number rises to more than $207,000.
As your savings build, you may want to get the help of a financial advisor to determine the best way to apportion your funds. Some companies even offer free or low-cost retirement planning advice to clients. Robo-advisors such as Betterment and Wealthfront provide automated planning and portfolio building as a low-cost alternative to human financial advisors.
Annuities Money Market Accounts Cds
Although they might have fancy sounding names, annuities, money market accounts and CDs are different ways of investing. Annuities, which are sold by insurance companies, are popular for retirees who want to receive a steady income. The company can dole out payments on a monthly, quarterly or annual basis. You can even get a lump sum payment. Fixed annuities make guaranteed payouts. Variable annuities can fluctuate depending on the underlying investments . Annuities provide a nice tax shelter because the money you invest grows tax-deferred. When you begin making withdraws, the amount you put into the annuity is tax free. However, the government will tax you on the earnings .
Money market accounts pay a higher interest rate than traditional savings accounts. However, you have to keep a minimum balance. Certificates of deposit, or CDs, are good ways to stash away extra money for a short period. CDs are one of the safest investments, however, they pay the lowest rate of return. Like a 401 or an IRA, the bank will penalize you for withdrawing the money early .
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If You Can Plan To Work Longer
The longer you can work, the better your retirement savings will be. By deferring tapping into your savings, youll let that larger pool of money continue to grow. Youll also maximize your Social Security earnings by waiting to start collecting . Additionally, your continued earning potential means youll continue to add to your savings while also requiring fewer lifestyle changes.
Track Your Savings Rate And Net
Its not about how much money you make, its about how much money you keep and invest. You want $1 you make to be worth $5, $10, or $20 in the future. This is how you amplify your time. The two most important numbers to track your early retirement strategy your savings rate and your net-worth.
Your savings is the percentage of your income that youre saving either before or after taxes in all of your accounts . There is a direct correlation between your savings rate and the years it will take you to retire early. The savings rate math is simple. No matter how much money youre making, heres how long you have to work to save 1 year of living expenses.
Working Years To Save 1 Year of Living Expenses Depending on Savings Rates
10% savings rate: 9 years of work /0.1
25% savings rate: 3 years of work /0.25
50% savings rate: 1 year of work /0.5
75% savings rate: 1/3 of a year of work/0.75
As you can see the higher your savings rate the faster youll be able to retire early. Calculate your savings rate using our savings rate calculator.
While your income, your savings rate, your investment returns, your debt to income ratio, and all those other numbers are important when optimizing your money, the single most important metric that you should be tracking is your net-worth.
Your net-worth measures how much money you are worth by subtracting your liabilities from your assets . It doesnt matter how much money you make if you spend it all.
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Look For More Ways To Save For Retirement
No matter how much or how little money you are able to save, it’s important that you start as soon as you can to maximize retirement savings and income for your future.
If you’re finding it difficult to cover your everyday expenses and also put away savings, there are still some options. Check out TIAA’s online insights about how to manage your money. Also, you can start envisioning your future by creating a customized action plan with our financial calculators.
Consider Opening An Ira To Boost Your Retirement Savings
If you dont have a 401k through your employer or you want to supplement those retirement savings, there are other tools you can use. An Individual Retirement Account is a retirement savings plan that allows you to save for retirement outside of your workplace.
There are two types of IRAs traditional IRA and Roth IRA. A Roth IRA is the most common and popular. You make contributions with after-tax income, but you wont be taxed when you withdraw the money once you retire. The 2019 IRA contribution limit is $6,000, so thats the most you can currently contribute in a single year.
Having a combination of retirement accounts allows you to diversify your retirement investments now. You can invest in a more diverse mix of mutual funds, which helps your savings grow and shields you against changes in the economy, Consolidated Credits education director April Lewis-Parks explains. It also gives you a way to withdraw money tax-free once you retire, because 401k withdrawals will be taxed.
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Equity Real Estate Investment Trusts
If you dont want to be a landlord or mortgage holder, consider investing in Equity Real Estate Investment Trusts . REIT is a company that owns, buys, sells, and manages income-producing properties, such as malls and apartment buildings.
Ideally, such companies are required to pay at least 90% of profits as dividends to shareholders.
With such a high dividend value, REIT is an ideal option for retirement investors looking for regular income. And if you dont need the regular income, you can reinvest those dividends to grow your investment further.
However, REITs can be varied and complex too. While some are traded on securities exchanges, others arent traded publicly. Non-traded REITs arent easily sold and thus can be highly risky. So, if youre a new investor, we advise you to only go for publicly-traded REITs.
In a nutshell, like all investment decisions, real estate is a good option if you educate yourself, polish your skills, have patience, and go about it the right way. Think about how much time you have, how much of your funds you can invest, and whether you want to deal with household issues directly or invest in non-physical real estate properties, like REITs.
Identify How Much Savings You Need
You might tell yourself you don’t need a million dollars or that you just want a simple life. But even a simple life can require $1 million in the bank after you quit working. Most experts agree that you should withdraw no more than 3% to 4% of your retirement portfolio each year during your retirement. If you do the math, 3% of $1 million is $30,000, and 4% is $40,000.
In other words, if you want to live on an income of $30,000 to $40,000 per year in retirement, you’ll need a portfolio of at least $1 million. That assumes you won’t have a pension, rental properties, or other sources of retirement income. It also excludes Social Security income.
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Decide When To Claim Social Security
Aside from saving, investing and bringing in extra income, its also important to decide when you want to claim Social Security benefits. Although you can claim Social Security as early as 62 years of age, it isnt always the most strategic option. The Congressional Research Service outlined in a recent report that full retirement age is between 66 and 67 years old, depending on when you were born an important point to be aware of.
Brian Fry, a certified financial planner and founder of Safe Landing Financial, works regularly with clients in their 40s, 50s and 60s to plan their retirement. He shared his advice with Annuity.org in an email.
To receive 100 percent of your Social Security benefit, you must wait until full retirement age. Each year that you claim before full retirement age, you give up between 5 percent and 6.67 percent of your full benefit. Benefits increase by approximately 8 percent for each year that you delay claiming Social Security after full retirement age.
Consider your timeline now to avoid making costly mistakes by claiming Social Security benefits too early. It will also help you see how much money you need to save for those years you wont receive Social Security benefits.