22% of Americans say they have less than $5,000 put away towards retirement. Yet, when asked, 40% of workers believe they will need $1 million in savings to afford retirement.
It’s the American dream to spend your younger life working so that you can walk away from your job and enjoy a leisurely retirement as you get older. Yet, retirement, especially a leisurely one, is going to cost you.
You wonder how much to save for retirement and then worry you’ll never be able to save enough to get there.
If you are considering planning for retirement and saving money, you may be looking for ways to elevate your retirement plan.
Read on for some wealth management strategies you can use to save for retirement.
How Much Should I Save for Retirement?
One of the trickiest questions in retirement planning is figuring out how much money you’ll need in retirement.
There are many factors to answering this question. This includes how much money you make before retirement, how much you spend, your age at retirement, and even the lifestyle you plan to live.
There are several different strategies used by financial planners to calculate retirement savings. They might ask:
- How much to save for retirement percentage
- How much to save for retirement per month
- How much to save for retirement calculator
- How much to save for retirement by age
There are a few different ways you could potentially calculate your needs.
Some financial planners suggest about 80% of your pre-retirement income per year. If your annual income is $150,000, you’ll want to plan for $120,000 per year in retirement.
Of course, you need to calculate what age you’ll retire and what your sources of income will include. Social security will be a factor to consider and will vary greatly depending on when you start benefits. More on this later.
Before Retirement Considerations
Before you enter the golden retirement years, there are some things you should consider beyond how much money you’ll need in retirement.
You should consider taking time to address the following to make your retirement life financially secure.
Get Debt Free
You should make every effort to enter retirement debt free. You may still have a mortgage and a car payment in retirement. Those are debts that take longer to eliminate.
But make every effort to get rid of all unsecured debt. Typically, these come with higher interest rates and more significant payments, so they will eat up more of your monthly budget. Paying high-interest rates when your income is lower doesn’t make good financial sense.
Have a Retirement Spending Strategy
Once you’re debt free, you also want to have a solid budget in place. Some retirees enter retirement looking at their nest egg, thinking they have so much money they can spend freely.
Once you have a solid budget, then you can formulate a spending strategy. This means you’ll look at what sources of income you’ll have available while in retirement and then also how and when you’ll utilize that income.
What Should You Do to Maximize Your Savings?
So, as you continue to consider retirement and what age you’ll join the ranks, there are some things you can do now to maximize your savings.
Let’s take a closer look at some things you should consider now.
Increase All Forms of Savings
Some pessimists would suggest you can never have enough savings as you enter retirement. In that spirit, save money wherever and however possible.
That might mean that you reduce your discretionary spending as you get closer to your retirement years. Make sure you have enough liquid assets to cover several months of expenses in case the market turns, and you want to leave investments alone for a bit.
Again, pay down any debts with high interest so that you can save those costs later on.
Work Longer Before Retiring
In 2022, the average retirement age was 61. Most Americans say, however, they don’t predict they’ll retire until they hit 66.
The truth is that the longer you work, there are two advantages. First, your investments have more time to grow in value. Second, you’re not starting to use them at a younger age, meaning they will likely last longer or need less.
Even opting to work a year or two longer can make a noteworthy difference.
Claim Social Security Later
Workers can claim social security benefits as early as age 62. However, if you do that, you will greatly reduce the amount received over the course of your life.
Opting to wait until age 65 will increase your benefits. Choosing to wait until age 65 significantly impacts the monthly social security benefits.
As you calculate your retirement income, consider what you’ll get from social security and whether it makes sense to postpone applying for benefits as soon as you’re eligible.
Maximize Your Company’s Match
Many companies will offer to match your contributions into retirement accounts, like a 401K. You’re sacrificing free money if you aren’t investing the minimum required to get the maximum matching funds in return from your employer.
Boost Your Savings With a Health Savings Account
If you don’t have a health savings plan, you should start one. The contributions that go into an HSA are tax deductible.
If you haven’t maxed out the amount you can contribute to your HSA, you should. You can use your HSA for medical expenses even into retirement.
If you don’t use the funds, they will continue to grow over time. After age 65, there are no penalties for using the funds for things beyond medical expenses.
If you use the funds beyond medical expenses after age 65, then you’ll be taxed at your regular taxable rate. Remember, your income bracket will likely be lower once in retirement.
Get Real Answers on How Much to Save for Retirement
You can do many things to maximize your finances as you work out how much to save for retirement.
If you’re in McClean, VA, or Greater Houston, TX, area, we can help you plan for retirement. Let us help you find ways to maximize your retirement funds. Contact us to set up a time to get started today.