Preparing for retirement is important when it comes to financial security and peace of mind as we get older. According to the United States Department of Labor, the average American spends approximately 20 years in retirement, which means having a financial plan is essential. Whether you are able to retire early or you choose to retire later, it is never too early to have the conversations with your spouse or family members and make sure you are on track for retirement.
Key tips for creating a retirement plan that’s right for you:
1. Calculate how much money you will need for retirement
In order to make a retirement plan, you will first need to determine how much money you will need to have in your savings. One of the biggest expenses for the average American during retirement will likely be housing and healthcare, in addition to food, utilities, and transportation. Most people will also spend money on household necessities, clothing, hobbies, or travel. Experts often use the 25x rule, which states that you will need to save 25 times the amount of your annual expenses in order to maintain your lifestyle for a 25 to 30 year retirement.
2. Save, save, and save some more
It is always a good idea to start saving as soon as you can and as much as you can. Many Americans start saving for retirement early using 401(k) and IRA accounts. Experts say that at least 10% of your income should be set aside towards retirement each year, or more if you didn’t start saving for retirement until later in life. Using retirement accounts rather than traditional saving accounts also means that your money will grow with compounding interest and be better protected from inflation.
3. Spend your money wisely during retirement
Planning ahead can help you save money and spare financial stress during retirement. Make sure to manage your debt and pay off as much as possible before you retire from full-time work. If you are behind on your 401(k) or IRA contributions, plan to catch up so that you can put aside more to save. If possible, consider working longer and delaying your Social Security benefits to increase the amount you receive in the future. Just pushing your retirement back by one year can make a significant difference in the amount of benefits you receive.
Are you financially prepared for retirement?
Use the AARP Retirement Calculator to calculate how much money you will need to have saved based on your current income and lifestyle.