Retirement is a period to look forward to in your golden years—enjoying what life has to offer with family and friends without worrying about a strict 9-5 job. However, many people do not understand how to save for retirement, or even how important it is for you to start saving as soon as possible. The fact is that Social Security is slowly running out, and young people are advised to start retirement savings accounts as soon as they enter the workforce. Older people who are close to retirement age still have a nice cushion of Social Security to rely on, which should be supplemented by their own savings. Here are some tips on saving for retirement and how to utilize your savings and Social Security.
Start Saving Early
For our younger audience, the best way to start saving for retirement is to open a retirement savings accounts. There are several kinds, the most popular being IRAs and 401(k) accounts. A 401(k) is a retirement savings plan that is set up and sponsored by your employer. Essentially, it allows you to divert part of your paycheck into a tax-free account—meaning, it allows you to save more than a regular savings account. Many companies will offer a percentage match in which they will contribute up to a certain percentage amount to your 401(k). The AARP website has a 401(k) calculator which can help you determine how much to contribute each year to your account and how much money you will save.
There are two types of IRA: traditional and Roth. You can contribute up to $5,500 annually and can withdraw money at any time. In a Roth IRA, money is taxed when you put it in the account, and in a traditional IRA, money is taxed when you withdraw. The biggest difference between the two accounts are the withdrawal rules: you must start withdrawing money from a traditional IRA at 70 ½, whereas you can keep growing the money in a Roth IRA for any number of years. There is no “better” IRA plan—you have to figure out which works best for you and your circumstances.
Didn’t Save? No Sweat!
For years, the message of “Saving for retirement!” has been beaten into the heads of many Gen Xers and millennials. But what if you’re older, and you didn’t start saving as soon as you got your first job? It’s not too late to open up a 401(k) or an IRA if you’re still working! Take advantage of the benefits of retirement accounts if you can.
In addition, it is possible to live solely off of Social Security. When it was first started, Social Security was intended to supplement savings, not be a primary source of income for retirees. However, 1 out of 5 couples today receive at least 90% of their income from Social Security. Some tips from the AARP site:
- Delay Social Security as long as possible, and if you file for Social Security and then decide you can wait, you have one year to withdraw your application
- Eliminate debt before you quit your job—pay off your credit card and mortgage before applying for Social Security
- Move to a cheaper town, city, or state if you currently live in an area with a high cost of living
- If you’re single, get a roommate to cut living expenses down
- Take advantage of benefits programs like Extra Help
Saving early for retirement is important, and for many younger generations, their personal savings are going to be instrumental in post-retirement life. However, many people in their 50s and 60s can still take advantage of Social Security and even live off it with some lifestyle changes. If you are still working and don’t have a retirement account, open one today! It is important that you take charge and secure yourself for your future.