According to the 2016 Retirement Confidence Survey, among those aged 50 or older, only 30% had saved $250,000 or more for retirement, while fully 27% had saved less than $10,000! That reflects too many Americans who haven't given sufficient thought to their financial futures.
It's dangerous to leave your retirement to chance, even if you're still young -- because there are actions you can take at any age that can make the last third or so of your life far more comfortable and happy. Here are three retirement rules everyone should follow.
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Plan for retirement now -- no matter how old you are
Even if you're several decades from retirement, it's smart to do a little retirement planning. After all, the younger you are, the longer your money can grow for you. Check out some of the following numbers:
|
Growing at 8% For: |
$5,000 Invested Annually |
$10,000 Invested Annually |
$15,000 Invested Annually |
|---|---|---|---|
|
10 years |
$78,227 |
$156,455 |
$234,682 |
|
15 years |
$146,621 |
$293,243 |
$439,864 |
|
20 years |
$247,115 |
$494,229 |
$741,344 |
|
25 years |
$394,772 |
$789,544 |
$1.2 million |
|
30 years |
$611,729 |
$1.2 million |
$1.8 million |
Data source: calculations by author.
Clearly, you can amass big bucks if you start early. If you're 55, though, you can still improve your financial future, though it will be harder. Take advantage of retirement accounts available to you, such as traditional and Roth IRAs and traditional and Roth 401(k) plans at work. And aim to not cash out 401(k) accounts when you change jobs or borrow from them if you can avoid doing so.
The most important thing to do is to have a good plan, and to execute it. Grab a pad and pen and perhaps a calculator. Are your savings on track? How big does your nest egg need to be and will it reach that size on schedule? How will you accumulate as much as you need to? This simple online calculator can help with your planning. It's meant to calculate interest, but you can swap in your expected investment growth rate for the interest rate, and then try out different savings levels. For example, if you start with $0, sock away $8,000 per year, and expect it to grow by 8% annually, on average, over 25 years, you'll end up with about $632,000. Try different scenarios that are realistic for you.
You might want to consider an immediate annuity (as opposed to a variable or indexed annuity) as part of your plan, to provide relatively guaranteed income. Dividend-paying stocks can be another great source of income. A portfolio with $300,000 in dividend payers with an average yield of 4% will generate $12,000 per year. That sum is likely to rise over time, too, as the underlying companies increase their payouts.
Image source: Getty Images.
Prepare for retirement in non-financial ways, too
Of course, your retirement will not be all about money. You'll want to build up a sufficient financial war chest, of course, but there are other ways to prepare for retirement.
For one thing, tend to your health, which is a smart thing to do throughout your life. The healthier you are, the less you'll likely spend on healthcare now and in retirement. (The folks at Fidelity Investments have estimated that a 65-year-old couple will spend, on average, around $260,000 out of pocket on healthcare over the course of their retirement.)
Know that many people find themselves bored, restless, or lonely in retirement. The routine of working is more important to some of us than we realize. Brace yourself for that and consider how you might deal with it -- maybe by getting a part-time job or taking up new hobbies. No matter how old you are now, you might look into developing some hobbies and friendships that you can carry into later years. Being social has been shown to pay big dividends, too, such as keeping you mentally and physically healthier and possibly keeping dementia at bay.
Image source: Getty Images.
Make savvy Social Security decisions
Finally, keep Social Security in mind, too. If you're young, know that the formula used to compute your benefits is based on your earnings in the 35 years in which you earned the most money (adjusted for inflation). So aiming to work that much is best, if it makes sense for you.
As you near retirement, and even if you're a decade or two away from it, find out how much money you can expect to receive from Social Security. A visit to the Social Security website at www.ssa.gov can help with that. To give you a rough idea, the average Social Security retirement benefit was recently $1,360 per month, or about $16,000 per year, while the maximum monthly Social Security benefit for those retiring at their full retirement age in 2016 is still just $2,687 -- or about $32,000 for the whole year.
Know that you can increase or decrease your benefits by starting to collect Social Security earlier or later than your "full" retirement age, which is 66 or 67 for most of us these days. Read up on strategies to maximize your benefits, especially by coordinating your actions with those of your spouse, if you're married. For example, the spouse with the lower expected benefits might start collecting early, so that the other spouse can delay starting to collect, making the ultimate benefits heftier.
Planning for a successful retirement is a big responsibility, but you don't have to do it alone. Consider consulting a financial advisor to help you get all your ducks in a row. Ones designated as fee-only (you might find some via www.napfa.org) won't be looking to earn commissions from selling you products.
The more you think about and plan for your retirement well before you retire, the better it's likely to be.
