People used to retire at age 65 and live for an average of another 10 or 12 years. It is now common to see people who are healthy and active well into their eighties, nineties and triple digits. With people living longer, a person now needs to plan on having enough income and savings for 20 or 30 years or more after they stop working. Your money needs to last much longer than ever before. In light of this reality, you need to know how to build a secure retirement.
It All Starts with a Plan
The Department of Labor provides a booklet called “Top 10 Ways to Prepare for Retirement.” When you hear the warnings from financial services companies that say you need over a million dollars saved to retire without running out of money, it can seem impossible. Many Americans do not have even $500 in savings.
When a goal seems ridiculously out of reach for many people, they make a choice not to think about the issue. They might resign themselves to the conclusion they will never be able to stop working. Since they cannot save enough money, they might as well enjoy themselves today and worry about tomorrow when it gets here.
Contrary to this assumption, developing a plan now can help you build retirement benefits and income streams to have enough money when you reach retirement age. In the alternative, a plan could make the difference between having to work full-time or part-time in your seventies. You would not get in the car and start driving from coast to coast without some type of guidance, whether it is a GPS device or roadmap.
Here are some tips from the Department of Labor:
- Start small. Have your employer automatically take a little money out of every paycheck and contribute it to your 401(k) retirement plan. If your boss provides matching contributions, you are leaving free money on the table every month you do not participate in your company’s 401(k). Try saving three or six percent initially, then increase the percentage every year by one or two percent. Because these contributions are pre-tax dollars, your take-home check will not decrease as much as you might expect. You will soon be saving 10 percent or more of your gross income for the future and getting the money your boss adds to that sum.
- Figure out how much money you will need after you stop working. If you have paid off your house, car and all other debt, you will need far less money every month to pay your bills. Your cash flow can be problematic, if you have to pay a mortgage, rent and other significant expenses in retirement. A person with a heavy debt load might need as much money coming in during retirement as he did during his working career, which can be $5,000 or $6,000 a month or more. On the other hand, a person with no debt might need only $1,500 or $2,000 a month.
- Make sure that you take advantage of all the benefits for which you are eligible. If you or a spouse served in the military, you might qualify for multiple forms of help in retirement, like medical care and monthly assistance. People who worked for the railroad, federal government, and other employers might get additional benefits. Your state and local community might have programs that can help with health care, utilities, housing, food, transportation and other necessities. Every dollar you do not have to spend, is a dollar you will have for the future.
When you retire, set up a budget and try to live under your means to increase your nest egg. Be as self-sufficient as possible. Many older people grow their own fruits and vegetables. They get food without pesticides and save a great deal on groceries.
Health and Human Services. “Retirement Planning & Security.” (accessed November 26, 2019) https://www.hhs.gov/aging/retirement-planning-security/index.html
Department of Labor. “Top 10 Ways to Prepare for Retirement.” (accessed November 26, 2019) https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/publications/top-10-ways-to-prepare-for-retirement.pdf