According to most retirement savings statistics, saving for retirement is something a lot of people put on the backburner. Until it is too late, that is.
For some people, the reason is that they are simply living paycheck to paycheck, so there isn’t much left to put aside. Others have some leftover money after covering the monthly expenses but aren’t sure how much they need to put in their retirement fund. Retirement is expensive and you need to know how much money you will need each year.
Most experts say your retirement income should be about 80% of your final pre-retirement annual income. That means if you make $100,000 annually at retirement, you need at least $80,000 per year to have a comfortable lifestyle after leaving the workforce.Facts:
- Only half of Americans have calculated how much they need to save for retirement.
- In 2020, more than a quarter of private industry workers with access to a defined contribution plan (such as a 401(k) plan) did not participate.
- The average American spends roughly 20 years in retirement.
Remember…Savings Matters! Here are 6 Ways to Save for Retirement:
1 – Focus on Starting Today – Start saving as much as you can now and let compound interest – the ability of your assets to generate earnings, which are reinvested to generate their own earnings – have an opportunity to work for you. Develop a plan and stick to it.
2 – Take Advantage of Your Employer’s 401(k) plan – Try to save at least 10-15% of your pay in a tax-advantaged retirement account, such as a 401(k). Make sure to increase your contribution or at least set up an auto-escalation so that you put in more each year.
3 – Meet Your Employer’s Match – If you employer offers to match your 401(k) contributions, make sure you contribute enough to take full advantage of the match. For example, an employer may offer to match 50% of employee contributions up to 5% of your salary. That means that if you earn “$50,000 per year and contribute $2,500 to your retirement plan, your employer would add another $1,250. It is essentially free money! Don’t leave it on the table.
4 – Invest in an Individual Retirement Account (IRA) – There are two IRA options: a traditional IRA or a Roth IRA. The taxes from your contributions and withdrawals are different with these two types of IRA’s so be sure to choose the type that is right for you.
5 – Take Advantage of Catch-Up Contributions – Turning 50 years old has some advantages, including being able to contribute more to your retirement account with catch-up contributions. In 2022, you can add an extra $6,500 per year in catch-up contributions, bringing your total 401(k) contributions to $27,000. For either a traditional or a Roth IRA, the annual catch-up amount is $1,000 which boosts your total contribution to $7,000.
6 – Find Out About Your Social Security Benefits – Social Security retirement benefits replace 40% of pre-retirement income for retirement beneficiaries. You can estimate your benefit by using the retirement estimator on the Social Security Administration’s website.
Debra Greenberg, Director of Retirement and Personal Wealth Solutions for Bank of America said, “Recognizing the need to put money away for retirement is the first step.” Understanding how much you want to save and setting goals to achieve your financial goals is vital. Starting too late and saving too little is a common regret among retirees. Making the effort now can help you look forward to your golden years.
Even with these tips, you’ll need more information. Talk to your bank or financial advisor to get practical advice to start saving today!