According to the latest research, one in three Americans currently has less than $5,000 set aside in retirement savings.
Are you part of this group? If so, have you thought about what you’re going to do to make sure you have enough money saved to retire when you’d like to?
The idea of saving for retirement might seem impossible right now. There are lots of steps you can take to start increasing your savings, though.
If you’re not saving for retirement yet, or if you only have a little money saved, it’s time for retirement 101.
Here are eight steps you can start taking today to begin planning for the future.
1. Do Some Math
The first thing to do when it comes to saving for retirement is to set a savings goal for yourself.
You’ll need to sit down and do some math to figure out how much money you’ll need to live a comfortable life in retirement.
Estimate your retirement expenses, and go into as much detail as possible.
Will you have paid off your home by then? Will you have a car payment? How much will you spend per month on gas, food, clothing, and gifts?
Once you have a good idea of your expenses, think about whether your savings, if you continue at your current rate, will support that lifestyle. If not, how much more do you need to save each year to reach your goal?
2. Invest in Retirement Accounts
If you’re not already utilizing your employer’s 401(k) program, start. The sooner you start saving, the better off you’ll be.
In addition to investing in a 401(k), you might also want to open a second retirement account. Most people choose to open either an Individual Retirement Account (or IRA) or a Roth IRA.
Let’s compare and contrast these two accounts so you can decide which is right for you.
IRA vs. Roth IRA
The main difference between an IRA and a Roth IRA is the tax breaks they provide.
If you invest in a traditional IRA, you don’t have to pay taxes on the money in that account. Instead, your deposits are deducted from your annual tax bill. When you withdraw money from the account after you’ve retired, you’ll be required to pay taxes on it.
With a Roth IRA, your deposits are not tax deductible now. But, when you retire and withdraw money from that account, you can do so tax-free.
If you anticipate a higher tax rate in retirement, a Roth IRA is a better option since you’ll end up paying fewer taxes on the money you’ve saved.
If you think your tax rate will be lower when you retire, it’s better to take advantage of the tax deductions now with a traditional IRA.
3. Take Advantage of Employer Match Programs
Investing in your employer-provided 401(k) is a great first step toward financial freedom in retirement.
It’s not enough just to invest, though. You also ought to be taking advantage of any kind of match program that your employer offers.
Many employers will match your 401(k) contributions if you invest a certain percentage of your salary.
This is free money going into your retirement account — why wouldn’t you take advantage of it?
4. Take Advantage of Catch-up Contributions
If retirement is right around the corner, it’s a good idea to take advantage of catch-up contributions.
If you’re age 50 or older, you are able to invest more into your retirement accounts so that you are able to save additional money for retirement.
Currently, if you’re age 50 or older, the IRS will let you catch up and contribute an additional $1,000 to your IRA and an additional $6,000 to your 401(k).
5. Pay Down Your Debt
Nobody wants to carry their debt with them into their retirement. The debt will eat away at your savings and make it much harder for you to live the lifestyle you want after you’ve retired.
Work on paying your debt down now.
Stop using credit cards and loans and set aside extra money to pay off debts as quickly as you can. You might have to make some sacrifices now, but they’ll pay off when you’re able to live debt-free in retirement.
6. Know Where You’ll Live
The place you live in retirement will have a significant impact on your overall lifestyle.
Do you plan to continue living in your current home? Are you considering downsizing or moving into a retirement community?
Wherever you choose to call home in retirement, be sure to estimate your expenses accordingly.
7. Look for Alternative Income Sources
If you have debt that needs to be paid, or if you just want to maximize your savings, start looking for additional ways to earn money.
Maybe you can pick up a side job as a Lyft or Uber driver or work for a meal delivery service like DoorDash or GrubHub.
These side gigs can put extra money in your account and help you reach your retirement savings goals faster.
8. Consider Future Medical Expenses
Retirement’s not all sleeping in and getting senior discounts at restaurants.
Keep in mind the fact that, as you get older, you may experience some health problems. Make sure you have a plan in place to address those problems.
Will there be a gap between your retirement age and the age at which you become eligible for Medicare benefits? If so, you’ll need to figure out a short-term health care plan.
You’ve Finished Retirement 101: Now What?
Congratulations, you’ve made it through retirement 101! Follow these eight steps and you’ll be well on your way to a successful, financially stable retirement.
What else can you do to begin planning for retirement, though?
There’s plenty of additional research you can do to learn about other strategies that will help you retire in style.
Now that you know you’ll have money set aside for when you retire, maybe you want to spend some time thinking about what you want to do during retirement?
Do you want to do all the traveling you never got around to while you were working? If so, head to the Travel and Leisure section of our site today for some tips on planning your next big vacation!