Getting ready for retirement requires consistent saving, prudent investing and strategizing to limit penalties and fees. You can build a nest egg faster if you take advantage of workplace retirement benefits and make optimum use of government programs, including Social Security and Medicare.
Here’s how to make a basic financial plan for retirement:
— Set your goals for retirement.
— Take advantage of retirement planning tax breaks.
— Open an IRA.
— Carefully select a retirement investment allocation.
— Make savings automatic.
— Use retirement planning tools to help you financially plan.
— Boost your Social Security benefit.
— Sign up for Medicare on time.
— Make an estate plan.
Set Your Goals for Retirement
Start by thinking about your values and what you want to do in retirement. “Knowing this, you can back out how much money you need to save to fund your future goals,” said Stephen Crawford, partner at Clarity Wealth in Newberry, Florida, in an email.
“With the top goal in place, you can then begin tactical steps to find money to put toward saving regularly,” Crawford said. “A spending plan is recommended to ensure you are spending money on the things important to you.” You can decide how much of your income you want to save each month. If you get a raise or receive an unexpected sum of money, consider putting aside part of it for retirement.
Take Advantage of Retirement Planning Tax Breaks
You can defer paying income tax on up to $23,000 in 2024 by contributing to a traditional 401(k) plan, and that amount jumps to $30,000 if you are age 50 or older. Income tax won’t be due on this money until you withdraw it from the account. Alternatively, you could contribute after-tax dollars to a Roth 401(k) and set yourself up for tax-free withdrawals in retirement.
Low- and moderate-income workers who save for retirement may additionally be able to qualify for the saver’s tax credit. These tax benefits give you an extra incentive to save money for the future.
Open an IRA
If you don’t have a 401(k) plan at work, consider saving in an individual retirement account. An IRA offers similar tax breaks to a 401(k) plan but isn’t tied to your job.
The traditional and Roth IRA contribution limit is $7,000 in 2024, or $8,000 if you are age 50 or older. Workers who earn below certain income cutoffs can save in a 401(k) and IRA in the same year. You can also roll your retirement savings from a 401(k) to an IRA each time you change jobs to make your retirement finances easier to manage.
[READ: 10 Reasons to Save for Retirement in a Roth IRA]
Carefully Select a Retirement Investment Allocation
Retirement savers have different choices regarding where to invest their funds. “The ideal mix of stocks, bonds and cash will be dependent on your risk tolerance, time horizon, and financial goals,” said Christopher Stroup, a certified financial planner at Abacus Wealth in Santa Monica, California, in an email. “Typically, it’s best to invest in higher risk investments while you’re younger as you have more time to weather market ups and downs.” As you approach retirement, you might choose to shift your investments to a more conservative mix to reduce risk.
“Continue to monitor and reassess your plan as needed,” Stroup said. “We often recommend that you revisit your retirement plan at least annually to ensure that your fiscal health remains on track.”
Make Savings Automatic
You can set your accounts to transfer a certain amount to savings every month. “This takes the emotion out of the decision every month and makes it a system,” said Sean Williams, a certified financial planner and principal at Cadence Wealth Partners in Concord, North Carolina, in an email. You could direct your money into a 401(k) or other retirement or investment accounts. “The key is to not have to think about it every month,” Williams said.
Use Retirement Planning Tools to Help You Financially Plan
Retirement planning calculators can help you determine if you will have enough money at retirement to cover your expected expenses. You can use a 401(k) calculator to figure out how much money you are likely to have at retirement given your current savings rate and expected investment returns. The Social Security Administration’s Retirement Estimator can give you an estimate of your future Social Security benefit based on your personal earnings record.
[READ: Great Retirement Planning Tools and Software.]
Boost Your Social Security Benefit
One of the most consequential retirement decisions you will make is when to sign up for Social Security. Payments are reduced if you sign up before your full retirement age, which is 66 or 67 for most people, and increase for each year you delay starting payments up until 70. Married couples can coordinate their claiming decisions to maximize their benefit as a couple. Continuing to work or suspending your payments can also have an impact on your retirement payout. Remember that your benefit will be adjusted to keep up with inflation each year.
[READ: What Is the Maximum Possible Social Security Benefit in 2024?]
Sign Up for Medicare On Time
If you receive health insurance coverage through your job, it’s important to enroll in another health plan before you retire, typically through Medicare or your state’s health insurance exchange. Medicare coverage can begin the month you turn age 65. It’s important to sign up for Medicare during the seven-month period around your 65th birthday because there are penalties if you enroll later. Those who continue to work after age 65 need to start Medicare coverage within eight months of leaving the job or health plan to avoid late enrollment penalties.
Make an Estate Plan
You can make life easier for your children and other heirs by creating a clear plan for your medical wishes and finances. Make sure that you have a will and advance medical directives in place and that beneficiary designations on your retirement and other savings accounts are up to date. An estate plan ensures that any assets you leave behind are distributed to the correct person.
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Your Guide to Retirement Planning originally appeared on usnews.com
Update 05/20/24: This story was published at an earlier date and was updated with new information.
