You finally did it. You finally said “I’m done working.” Now that you are able to relax and do things you enjoy, you may be wondering if you have enough money to maintain your living standards. According to the National Retirement Risk Index from The Center for Retirement Research at Boston College, approximately 52% of Americans will fall short, by 10% or more, of the goal of replacing three-quarters of their pre-retirement income when they retire.
You do not have to be part of this statistic. You can prevent not having enough income in retirement if you take these ten proactive tips:
1. Don’t save for college instead of retirement. Most parents feel like they need to save for their child’s college education. Remember your child can get loans to help finance their education, so make that you contribute to your retirement fund first.
2. Start saving, as soon as possible, even it is only a small amount. Compounding interest is an important factor in growing your retirement fund. Your savings combined with the money it earns will help your money come out much further ahead than if you waited until later in life to begin saving.
3. If the company you work for has a 401(k) plan and matches your contributions, not contributing enough to receive the maximum match in like throwing away money. The contributions you make are on a pre-tax basis, you get more bang for every buck you invest in the plan. Set up a contribution amount and stick with it, and when you receive a pay raise or bonus consider increasing the amount.
4. Don’t accumulate credit card debt. The money you pay to the credit card companies for interest on your card balances could be used to grow your retirement fund.
5. Don’t think you’ll inherit enough to finance your retirement. Counting on an inheritance to help you fund your retirement is very risky. While your parents may have saved a large amount of money, there are many things that can cause them to spend it, like illness or the need for long-term care. If you do receive an inheritance, it should be an added bonus to the money you already have saved.
6. Never spend more on a house than you can afford. If you use all your money to pay your mortgage instead of investing a portion for your retirement will hurt you in the long run. A home mortgage loan has tax advantages in that the interest is tax-deductible, that write-off is not as good as the tax advantages of a 401(k) plan or an individual retirement account (IRA). Before taking out a big loan for your home, make sure you can pay it and still contribute to your retirement fund at the same time.
7. Have adequate insurance coverage. You need insurance to protect you in a case of a fire, an unexpected serious illness, a natural disaster or a major auto accident. If you don’t buy insurance, you run the risk of putting your retirement savings in jeopardy if you need money to recover from one of these events.
8. Take advantage of IRAs. An IRA has tax advantages that help you maximize the amount you can grow for retirement. You should contribute to them as early as you can in your work life, so you can create a large nest egg as you can.
9. Don’t invest too conservatively. Over time, inflation will diminish the purchasing power of the money in your retirement fund. Make sure your investments, especially those you make early in your working career, will give you the gains you need to compensate for that. You can be more conservative in your investment strategy as you get closer to retirement.
10. Don’t invest too aggressively. Try to avoid investing in assets that promise huge returns but which are extremely risky. Give yourself a set amount of money each month to put into an investment that is relatively safe and will give you a good return.
Accumulating adequate assets for a comfortable retirement is a long process. If you start saving early for your retirement over your working career, chances are you will not fall short of your retirement income goals.
Frimark/Keller & Associates is a full serviced Trusted Choice Insurance Agency. We have protected the residents and businesses of Schaumburg and Park Ridge since 1910. We offer a full array of personal insurance, business insurance and life insurance products. Call us at 847-907-4520!