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 80 percent of your pre-retirement income—lower earners, 90 percent 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.
According to the National Academy of Social Insurance, for a worker retiring in 2013 at age 65, Social Security replaces 35 percent of final pay to a worker at $69,950; 42 percent at $43,720; and 56 percent at $19,670. Learn what your estimated Social Security Benefit will be at retirement by using Social Security's Retirement Estimator or contact the Social Security Administration at (800) 772-1213 for more information.
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 free information on private pensions, go to Consumer Information on Retirement Plans at the Department of Labor's website or call (800) 998-7542.
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, please see Internal Revenue Service Publication 590 or order a hard copy 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 $5,000 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 percent 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.
The Advantage of Starting Early
Start now! If you were to start saving $2,000 each year and your money earned 4 percent 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.
More information on planning and saving for retirement is available.