Top Ten Ways to Beat the Clock and Prepare for Retirement
1. Know your retirement needs.
Retirement is expensive. Experts estimate that you'll need about 70% of your pre-retirement income - lower earners, 90% or more - to maintain your standard of living when you stop working. Understand your financial future. See the Ballpark Estimate retirement planning worksheet.
2. Find out about your Social Security benefits.
Social Security pays the average retiree about 40% of pre-retirement earnings. The Social Security Administration now sends out "Your Social Security Statement" automatically to current workers 25 and over who are not already receiving Social Security benefits approximately three months before the recipient's birthday. Contact the Social Security Administration at (800) 772-1213 for more information and to request a free "Your Social Security Statement" if you didn't receive yours.
3. Learn about your employer's pension or profit sharing plan.
If your employer offers a plan, check to see what your benefit is worth. Most employers will provide an individual benefit statement if you request one. Before you change jobs, find out what will happen to your pension. Learn what benefits you may have from previous employment. Find out if you will be entitled to benefits from your spouse's plan. For more information about employee pensions go to www.dol.gov/ebsa/ or call (866) 444-EBSA (3272).
4. Contribute to a tax-sheltered savings plan.
If your employer offers a tax sheltered savings plan, such as a 401(k), sign up and contribute all you can. Your taxes will be lower, your company may kick in more, and automatic deductions make it easy. Over time, deferral of taxes and compounding of interest make a big difference in the amount of money you will accumulate.
5. Ask your employer to start a plan.
If your employer doesn't offer a retirement plan, suggest that it start one. Simplified plans can be set up by certain employers. For information on simplified employee pensions, order Internal Revenue Service Publication 590 by calling (800) 829-3676. If you work for a small business ask your employer to see the Small Biz Retirement Quiz.
6. Put money into an Individual Retirement Account.
You can put $4,000 a year into an Individual Retirement Account (IRA) and delay paying taxes on investment earnings until retirement age. If you don't have a retirement plan (or are in a plan and earn less than a certain amount), you can also take a tax deduction for your IRA contributions. (Withdrawals prior to age 59 1/2 may be subject to a 10% penalty tax.) IRS Publication 590 contains information about IRAs.
7. Don't Touch your savings.
Don't dip into your retirement savings. You'll lose principal and interest, and you may lose tax benefits. If you change jobs, roll over your savings directly into an IRA or your new employer's retirement plan.
8. Start now, set goals, and stick to them.
Start early. The sooner you start saving, the more time your money has to grow. Put time on your side. Make retirement saving a high priority. Devise a plan, stick to it, and set goals for yourself. Remember, it's never too late to start. Start saving now, whatever your age. See the Retirement Personality Profiler and the Retirement Readiness Rating(R3).
9. Consider basic investment principles.
How you save can be as important as how much you save. Inflation and the type of investments you make play important roles in how much you'll have saved at retirement. Know how your pension or savings plan is invested. Financial security and knowledge go hand in hand.
10. Ask questions.
These tips should point you in the right direction, but you'll need more information. Talk to your employer, your bank, your union, or a financial advisor. Ask questions and make sure the answers make sense to you. Get practical advice and act now. See The Power to Choose and How Do I Get There From Here? brochures.
Financial security doesn't just happen, it takes planning, and commitment, and yes, money.
Fact:
Thirty percent of Americans have not put any money aside specifically for retirement.
You can't retire with security unless you really prepare for it. That means facing up to reality, and beginning to take action for tomorrow as well as today.
Fact:
Of those with 401(k) coverage available, one-quarter don't participate.
Putting away money for retirement is like giving yourself a raise. It's money that gives you freedom when you want it-and deserve it.
Fact:
The average American retiring at 65 can expect to spend 18 years in retirement.
The Advantage of Starting Early
Start now! If you were to start saving $2,000 each year and your money earned 4% annually (above inflation) then the chart below shows what you would accumulate after 10 years, 20 years and 30 years.
Save! Your retirement clock is ticking.
How to Find out More
Here are sources of information to help you prepare for retirement.
Pension and Welfare Benefits Administration
U.S. Department of Labor
(202) 219-8776
www.dol.gov/ebsa
Savings Bond Operations Office
U.S. Department of the Treasury
(800) 4US-BOND
www.savingsbonds.gov
Social Security Administration
(800) 772-1213
www.ssa.gov
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American Association of Retired Persons
(202) 434-3525
www.aarp.org
American Savings Education Council
(202) 775-6364
www.asec.org
Employee Benefit Research Institute
(202) 659-0670
www.ebri.org
Investment Company Institute
(202) 326-5800
www.ici.org
Securities Industry Association
(202) 296-9410
www.sia.com
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