Most people will receive Social Security payments in retirement. A fortunate few will also receive public or private traditional pension payments. But you can’t necessarily count on these sources to provide enough income to fund a comfortable retirement. Even if you will receive income from both, it’s a good idea to diversify your sources of retirement income.
Instead of counting on a pension or even Social Security benefits, you need to take more responsibility for your retirement planning. Your pension and Social Security benefits will likely still be there when you retire, but as many current retirees have learned, the benefits could be reduced or the cost of living increases may not keep pace with your expenses.
Here are four tips for taking control of your retirement, so you don’t have to rely on something over which you have no control.
1. Employer matching contributions. If you work for an employer that offers company matching on a retirement savings plan, then you need to take full advantage of this benefit. Many employers now offer retirement plans with matching contributions (usually up to a certain percentage) in place of a pension. So if your employer offers a 5 percent match on money you put away in a retirement savings plan, take full advantage of this. This is free money that you can invest to help reach your retirement goals. Don’t skimp by putting in less than the amount required to get the highest possible company match.
2. Start early. Compound interest is a powerful tool at your disposal to properly save for retirement. The earlier you start saving, the more wealth you will build. Getting a late start won’t necessarily prevent you from retiring on your terms. But you may need to make up for the late start elsewhere, perhaps by increasing your savings rate, decreasing your expenses or working a little longer than you initially planned. Ideally, combining these three strategies will help you reach your goals more quickly.
3. Lifestyle. Many people aim to live within their means. But in order to start planning for retirement, you will need to do more than that. You will need to live below your means, and come up with a budget that allows for savings that can be invested for retirement and other long-term goals. Each month you need to spend less than you make and invest the difference.
Living below your means accomplishes two important goals. First, you are putting money toward retirement. Second, you are adopting a smart lifestyle that teaches you how to live on a limited budget, which will continue to help you during retirement. The less money you need to support your lifestyle, the less money you have to save for retirement, allowing you to reach your retirement goals with more speed and certainty.
4. Use tax-deferred accounts. Be sure to take advantage of tax deferral options for retirement, such as individual retirement accounts and employer sponsored retirement plans, including 401(k)s, 457s, 403(b)s or the Thrift Savings Plan. In some cases, you can even use a health savings account for retirement.
Tax-deferred accounts help you grow your retirement income faster, because you don’t pay taxes on the money or the growth until you take withdrawals in your retirement years. And deferring the payment of taxes on the dividends, interest and capital gains each year allows your nest egg to compound more quickly.
While the future of some public pensions looks bleak, most plans will likely survive. The same can be said for Social Security benefits. By the time you retire, you will probably be able to take advantage of at least one and perhaps both of these forms of retirement income.
However, it is not wise to completely rely on either of these options for retirement. Instead, the smart choice is to take personal responsibility for your retirement planning. That way any income that you do end up earning from a pension or windfall will be an unexpected surprise in retirement.
Ryan Guina is the founder of CashMoneyLife.com.
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4 Ways to Take Retirement Planning Into Your Own Hands originally appeared on usnews.com
