Are you on track with your plan for saving for retirement? Most people would say no and many actually have no plan at all for reaching their retirement saving goals. This can be devastating in your later years and it is difficult to make up for the time that was lost at a later date. It is estimated that most people will need 75% to 85% of their current income to maintain the same quality of life during their retirement years, yet social security payments will generally only replace around 30% of an individual’s income. This means that the rest needs to come from the amount that the person has been able to put away as retirement savings. If you do not already have a plan, here is how to create one.
Determine Your Desired Lifestyle
The type of lifestyle that you will want to have during your retirement years will help you determine the amount that you will need to save to have a comfortable retirement. People that will be content to stay in their current home and visit friends and family nearby will not need to save as much as those who want to relocate or travel a lot during their retirement years. You will also have to take into consideration whether you will still be paying the mortgage on your home and the cost of medical care as you age. While it may be difficult to come up with an exact monetary amount for these items, an educated estimate will go a long way towards helping you formulate your plan.
Calculate Your Expected Payments
The next step is to calculate the payments that you expect to receive during retirement. While social security payments are not intended to be a person’s sole source of retirement income, they can be instrumental in helping a person make ends meet during their retirement years. Every year, the Social Security Administration sends out letters to individuals across the nation detailing how much they have paid into the system to date and how much they can expect to receive in payments once they have reached retirement age. Use this information along with any other potential sources of retirement income to calculate how much income you expect to receive each month or each year after you retire.
Create a Savings Plan
Once you know how much money you will need and how much income you can expect from other sources, you can create a retirement savings plan to bridge the gap between them. While the number you reach may seem enormous at first, it is important to remember that you will have many years to save the amount needed. Your completed savings plan might include 401(k)s, IRAs, taxable accounts, self-employment retirement accounts, the sale of a business, an inheritance, earnings during retirement, or other sources. With diligent and dedicated savings efforts, you should be able to save the amount that you need before you reach retirement age, substantially increasing your financial security for your retirement years.