Every passing day brings you a little closer to retirement, but if you haven't taken steps to prepare for it, this thought may bring you more anxiety than comfort. It's not as difficult as you think to ease that anxiety, though. If you do the following three things right now, you can improve your retirement readiness quickly.
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1. Create a retirement plan
It's difficult to reach a goal you haven't clearly defined, and that's why you need a well-thought-out retirement plan. Start by outlining how you envision your retirement. Ask yourself questions like:
- Where do I plan to live in retirement?
- How do I plan to spend my time?
- Do I envision working at all?
- Will I do any traveling?
If you're married, talk about this with your partner to ensure you're both on the same page. Then, start thinking about when you plan to retire and how long you expect to live to get an idea of how long your retirement will last.
Use the information from your brainstorming above to estimate your spending in retirement. A retirement calculator can help you do this math. Or if you expect your spending to remain similar to what it is now, you could aim to save about 25 times your current annual expenses based on the popular 4% rule, which is designed to help your savings last 30 years.
Keep in mind, you probably won't have to save all that money on your own. Many retirees will receive regular income from dividend stocks, and even more will receive Social Security checks in retirement. Once you know how much money you'll get from these sources, you can adjust your total retirement savings goal to figure out how much you must save on your own.
2. Think about when you want to claim Social Security
Speaking of Social Security, when you claim matters. You can sign up as early as 62, but you must hold out until your full retirement age (FRA) if you want the full benefit you've earned based on your work history. This is anywhere from 66 to 67, depending on your birth year.
Every month you claim benefits under your FRA shrinks your checks, while every month you delay benefits past your FRA increases them until you reach your maximum benefit at 70. But this doesn't mean delaying benefits is always your best move.
It could be the right choice if you believe you'll live into your 80s or beyond, and you can afford to cover your retirement expenses for those additional years before you sign up for Social Security. In this case, delaying Social Security will likely lead to a larger lifetime benefit. But those with shorter life expectancies are likely get more out of the program by claiming earlier.
Married retirees also need to consider more than just their own benefit. As long as one spouse worked long enough to qualify for benefits, both are entitled to them, even if the other never worked. If both qualify for benefits on their own, the Social Security Administration will give each person the larger of their own benefit or the spousal benefit they're entitled to. This is up to half their spouse's benefit at their FRA. But it's not possible to claim a spousal benefit until the worker has signed up.
3. Begin making regular retirement contributions
Making retirement savings a habit will increase your likelihood of meeting your savings goal. This can be an automatic process if you have a 401(k). In that case, all you have to do is indicate how much you want withheld from each paycheck, and your employer will set aside the money for you.
You can also open an IRA if you don't have access to a 401(k). You should be able to link a bank account and set up automatic transfers to your IRA as well. You could do the same with a taxable brokerage account too, though this won't give you the same tax advantages as a retirement account.
If you're struggling to save as much as you'd like, you may have to repeat the steps above, making a few changes to your retirement plan until you find one that works for you. Delaying retirement or altering when you plan to claim Social Security might help you make up for smaller contributions. Then, once you find something that works for you, stay with it until you reach your savings goal.
