It doesn’t matter if you’re retiring in a few years, or in a few decades, you need to start planning today. While the older generation could expect a pension or other government financial support, Millennials and younger generations know that it’s our savings that will dictate our lives in retirement.
But it’s overwhelming to think about. There are so many questions- where do you even start? How much money will you need to retire? How will you pay for medical costs once you’re retired? And, how can you save when you have a mortgage, living expenses, and you feel like you’re only just getting by? Do you want to stay in your own home or move into a retirement village?
While it’s always best to get specific, tailored advice from a financial planner or advisor, it’s not always possible. This article goes over the basics so you can get organized and start planning from today.
1. When Will I Have Enough Savings to Be Able to Retire?
The retirement age in the US for anyone born after 1960 is 67. But, there are people who may need to quit work early, or some who simply won’t have enough money saved to retire then. So the better question is: assuming I retire at 67, and live to the average life expectancy, how much will I need to retire comfortably?
First, your life expectancy is:
- White male 76.5 years
- White female 81.3 years
- Black male 71.8 years
- Black female 78 years
So if you’re a Black female who retires at age 67, you need to finance for 11 years of retirement. You’ll get some social security, but will that be enough to fund the kind of lifestyle you want? What’s the shortfall?
2. Consider Your Expenses
But the one big expense you need to think about is your medical care. As you age, your medical needs increase. Your body starts to wear out, everything from your eyes, teeth, and joints, to your organs. How much will Medicare cover? Will you need to pay a premium for cover? This calculation is different for everyone’s unique circumstances. If you’re retiring in the next few years, you need to see what you’re eligible for, and how much it might cost you.
3. Understand How Retirement Age Affects Social Security Benefits
As of today, social security can be paid from age 62. But like everything else, there’s strategies and different amounts depending on a range of factors. Marital status, if you’re working while retired, pension payouts… but the longer you wait to begin collecting social security, the more you’ll get.
Begin reading about this to understand how much you might expect from social security. Then, you can take the figure from your expense calculations, and subtract the social security amount; this is how much you’ll need to save.
4. Get Rid of Debt
Debt and interest payments will eat away at your money. Credit card interest, car loans, mortgages, student loans… These debts can make you financially insecure now and into retirement. The best idea is to get rid of it all as soon as you can. Start a debt repayment plan, aiming to reduce the high interest rates debts first.
Student loans have lower interest rates than your credit card, but you need to pay them off too. Up to 15% of any social security payments could be garnished if you fall behind on repayments. While you’re going hard paying off high interest debt, keep chipping away at your student loans, even if it’s just the minimum.
5. Set Up Savings
Make sure you take advantage of any IRA and 401(K) savings plans, utilizing your employer’s contributions as far as possible. For older people, try to make catch-up contributions if you can too.
You also need to ensure you have savings of your own, as your retirement funds may not be easily accessible if you need them urgently for an emergency. Most financial advisors recommend enough in accessible savings to cover three to six months of expenses.
However you stash your money away, it needs to gain more interest or returns than the rate of inflation. Otherwise, it’s essentially devaluing as it sits.
This needs a mindset change; you should make savings a priority. Invest in yourself first. Women especially need to have their own savings and finances aside from their partners. Women earn less than men and take career breaks to have children, so earning capacity is diminished. Alongside dismantling the patriarchy and demanding equal salaries, you need to take control of your own finances.
Start Managing Your Money and Saving for Retirement Today
Wherever you are on the financial spectrum, or if you’re young or old, you should be taking steps to save and plan for retirement. Young people can use compounding interest to their advantage, and older people can use their financial freedom (hopefully) to save more.
If you’re unsure, get help from an expert. Managing your finances and making good choices can be tough, but they can help you do what’s best for you. They know all the tricks, ways to save money, and how to maximize any benefits to your advantage.
