Carefully Calculate Your Retirement Needs
As you get closer to retirement, you need to sit down and calculate how much money you need to retire comfortably. Since you will likely not be earning a lot of income during that time, you want to ensure that you will have enough—and more—letting you do some things you have always wanted to do. The DOL suggests that you will likely need between 70–90 percent of what you are making now.Accurate calculations mean looking at all your expenses now to see where your money is going. Then, look it over carefully and decide which costs you can do without—enabling you to put even more away for retirement.
Save for Retirement
The best way to start being prepared to retire is to set aside some money each month into one or more retirement accounts. Probably the best one is one your employer offers—if they also offer matching funds. If you can, contribute at least an amount equal to what your employer is willing to match. It is free money for you that builds interest and helps your retirement account grow faster.Consider Paying Off Your Biggest Bills First
Ideally, you should not retire before your biggest bills—such as your mortgage—are paid off. Once eliminated, it enables you to keep as much money for a long retirement as possible. It will also help you have less stress during your retirement and more money to do some fun things, such as travel.Save for Your Retirement
As soon as you can, start saving money in one or more qualified retirement plans. Some plans allow you to put in money pretax, giving you a tax deduction. Other ones are aftertax, i.e., without a deduction.Downsize Your Home
Selling your present home may also enable you to save more money. Personal finance expert Suze Orman suggests downsizing several years before retiring to help you save more money. The interest you could gain in those few years could make such a decision well worthwhile.Build Your Emergency Fund
It is also a good idea to increase the size of your emergency fund before you retire. Suze Orman makes this recommendation because if inflation continues to increase, it could become necessary to start taking money from your retirement savings to make ends meet. You can keep your retirement fund intact if you have more money saved—two or three years’ worth—in your emergency fund.Wait Until Reaching Full Retirement Age Before Taking Social Security
You can start getting Social Security benefits when you turn 62. Even though it may help you retire early, you could be selling yourself short by a lot of money if you do. A chart on the Social Security Administration’s (SSA) webpage reveals that you will lose 25 percent of your benefits by retiring early at 62. If your spouse also retires at 62, another 25 percent will be lost—which amounts to hundreds of dollars’ difference—possibly more than $1,000 per month.The Recommended 4 Percent Withdrawal per Year May Be Too Much
In the past, it was often recommended withdrawing 4 percent of your retirement funds per year. This figure fell out of favor a few years ago, but may be making a comeback. LiveMint suggests this still could be a good idea.LiveMint suggests taking a lower amount—such as 3.3 percent in your first year—because of lower returns on investments in today’s market. If inflation decreases the following year, you can adjust your withdrawals to a higher percentage—possibly 3.8 percent or 4 percent. The biggest risk during retirement is having more than 60 percent in stock. A bear market could wipe out some of your future investment money.
The longer you wait to enter retirement, the bigger percentage of your savings you could take each year. As you grow older and your health and strength start diminishing, you will be less likely to want to travel and do other costly things. It means you will likely not need as much money per year in your later seventies and eighties.
After you retire, you still need to keep an eye on your retirement funds. The economy is constantly changing, and it will affect your various retirement accounts. Social Security accounts for inflation each year by adding a cost-of-living adjustment (COLA), but other retirement accounts do not. By ensuring you have enough money before retiring, you will be able to have less stress and enjoy your retirement more.