Personal Finance Strategies: Retiring
Date: January 5, 2017
Having enough to live on in your golden years isn't an issue of luck, but of careful planning. If you’re looking to put together a retirement plan but don’t know where to start, use these tips to set yourself up for a comfortable, financially stable future.
When is the best time to start saving for retirement? That's today, according to Sean Stein Smith, CPA and member of the American Institute of CPAs' National Financial Literacy Commission, in the greater New York City area. Yet four out of five American households have saved less than one year's annual income. Even when you account for the value of their homes, two-thirds of households approaching retirement have not saved enough.
"The most important thing when thinking about retirement planning or saving in general is to start the process as soon as possible and to not put it off," Smith says. "Every dollar that is put away today has more time to grow and help build your future financial planning and retirement nest egg.” In reference to an Einstein quote, he says, “Compound interest is the 8th wonder of the world. Make it work for you by putting funds away for retirement sooner rather than later."
Getting started means gathering the right tools for saving. Quicken Starter Edition has a wealth of resources to help you set up a budget, track your expenses and find ways to start setting aside as much as possible toward retirement.
Leverage Your 401(k)
The best way to start growing your retirement nest egg, advises Smith, is to leverage employer tools like your 401(k). "Especially if your employer matches your contribution, you can supercharge your retirement savings and activity," Smith adds. "Also, remember that any contributions that are made on a matching basis are, in essence, free money to you — who wouldn't like that when thinking of retirement?"
According to the Bureau of Labor Statistics, 68 percent of employers offer retirement benefits, but only 79 percent of eligible employees are using the plans. If you're not certain what benefits may be available to you, ask your employer.
Automate Your Savings
Many employers match employee contributions to retirement plans, but even if your employer doesn't, one of the chief benefits of using an employer-based plan is that your savings are automatically deducted from your paycheck at the source. This eliminates the need to remember to set aside money each month. If your employer doesn't offer a retirement plan, Smith recommends setting up a direct deposit from your paycheck through your financial institution.
Plan for Taxes
If your employer doesn't offer a 401(k) plan, enroll in an Individual Retirement Account, or IRA. This is a great way to set aside as much as possible for your retirement. Your contributions are tax-deductible, so you will have that much more money at the end of the year to invest in your future. If you are in a lower tax bracket right now, a Roth IRA may make more sense. You won't get the tax deduction today, but the money is tax-exempt at retirement.
Maximize Your Investments
While the amount you'll need to retire comfortably depends on your lifestyle expectations, a realistic goal is to have 8 to 11 times your annual income. Once you start to accumulate some savings, make sure you invest it wisely to ensure it works as hard for you as you are working.