It’s a question that many people ask but few can answer confidently. National studies show that most people today work later in life than did previous generations with nearly one-third of Americans between the ages of 65 and 69 still active in the workforce.
Pinpointing the right age to retire is as much a psychological challenge as it is a financial one. Some people simply need to stay busy. Far more people keep working because they can’t afford to stop.
So how do you know when you’re financially ready to retire? There are all sorts of guides you can follow. But the reality is the amount that’s right for some may be totally wrong for others, depending on how long you plan on working, your life expectancy, and what you want to do during your retirement years.
Many financial experts suggest saving 15% of your income annually. Others have said you should have saved roughly 10X your annual salary if you want to retire by age 67. Another typical guideline is to plan on replacing 70% to 90% of your annual pre-retirement income through savings and Social Security.
Chances are that whatever you thought you needed, you probably need to think bigger.
As people are living longer today, many could easily spend 20+ years in retirement. Depending on lifestyle and geographic location, your savings might not stretch as far as you think!
So if we can’t definitively say how much, let’s start with when you should start saving for retirement. That’s an easy one, as the answer is NOW! It is never too early nor too late to start saving for that retirement nest egg. Regardless of your age or how much you’ve already saved, there are a few common ways to maximize your retirement account.
- Max out your 401(k) or your company’s equivalent if you work at a non-profit or are self-employed. Under current federal law, most people are allowed to contribute up to $18,000 per year into a qualified 401(k).
- Make catch-up contributions. If you’re over the age of 50, you are authorized to contribute an additional $6,000 per year to your 401(k).
- Aim to get an employer match. If you’re just not in a position to contribute the maximum amount to a 401(k), at least contribute enough to qualify for an employer match. Not doing so is like throwing money away.
- Open and continue to fund some type of IRA. Depending on your income level, you may benefit more from a traditional IRA or a Roth IRA. By setting up automatic payments, you can fund these accounts before you have the cash in your hands to spend on other things.
- Spend less.This sounds basic, but even spending 10% less each month on non-essentials can make a huge difference over a 10-20-year period. Make a list of all your expenses to better understand where your money is going. Then develop a realistic plan for cutting back or cutting out.
- Renegotiate. Some debts are fixed. Others can be restructured or refinanced to take advantage of lower interest rates.
- Delay social security payments. Assuming you’re in good health and can comfortably keep working, try to extend the period before starting to draw down on social security benefits.The average person will receive a 7-8% increase in monthly payments for every year he/she postpones taking social security payments after the age of 62 and up until the age of 70.
Retirement is meant to be enjoyed. But without adequate financial resources, you might not be able to enjoy yours. So start making your retirement plan today and then stick with it!
The information and recommendations contained herein is compiled from sources deemed reliable but is not represented to be accurate or complete. In providing this information, neither Cortland Bank or its affiliates are acting as your agent or is offering you any tax, accounting or legal advice.