Saving enough for retirement is standard advice. However, many people fail to understand how much to save to enjoy their superannuated life in the best possible way. Going by numbers, it can seem a tall order because, according to Paul Haarman, you must save at least 10 times your last drawn salary when you retire. But the task is easier said than done, as many have found out, because often the best intentions are waylaid by life’s uncertainties. As a result, many people on the verge of finding themselves in a precarious financial position concerning the savings generated.
They can follow the steps discussed below to get some reprieve from the stress of not saving enough for their retirement.
Know where you stand
Take stock of the situation and count on all kinds of savings you have made over the years. For example, include all the 401(k) of your previous employer that you might have forgotten about. Then, look at your credit card reward points, unclaimed state tax refunds, as well as federal tax refunds, pension plans, employer retirement plans, old bank accounts, old bonds, and life insurance policies. You could be surprised to look at the cumulative sum of money that can be much higher than what you expected, explains Paul Haarman.
Ascertain your financial need on retirement
Determine the sum of money you need for comfortable living after retirement. First, add up your expenses like mortgage payments or rent, groceries, prescription medications, Communication bills, TV bills, debts, and health insurance. Next, add any other costs you would incur every month. The information helps to determine the amount you would need every month after retirement.
Keep working
Long working tenure will help you save more, but frequent job changes can impact your 401(k) as there is a waiting time of 6 months for almost 41% of employees to start contributing to the fund. In addition, vesting entails ownership of the fund that might take a couple of years up to 7 years to become fully vested. Some schemes allow partial vesting each year with a yearly increase in the vested amount until you reach the maximum limit.
Maximize your investment
Investing to your full potential without compromising your lifestyle ensures that you save maximum, which takes you closer to your target of the corpus you need after retirement. Put in extra money as part of your contribution in 401(k) and in most 457 plans, 403(b), and Thrift’s Saving Plan of the federal government to attain the limit of $19,600. Those who are above 50 years can add an extra $36500 annually as catch-up contributions. For more savings, open an IRA account.
Avail the benefit from tax incentives
When making catch up contributions, take advantage of the tax incentives. For example, if you belong to the 24% tax bracket, maximizing your IRA savings can help to save tax to the tune of $1440. Add to this the benefit of catch up contributions for those above 50 years who enjoy the maximum benefit for another $1560 than those below 50 years.
For a strategic approach in saving and investment, take the help of a financial advisor.