With people living longer and longer, knowing how to plan for retirement has never been more important. This is a topic that is often ignored when individuals are younger, leading to a series of worries as you get older. However, starting to plan for retirement does not need to be complicated or scary in any way.
The first thing to understand is how long retirement will last. In America, this average is over 20 years. That means that at the median, at least 20 years need to be planned for if one is in generally good health this can be a much longer period of time. If one only plans for 10 years, their retirement may be interrupted and they may find themselves in a very uncomfortable situation.
Seeing if your employer offers a 401K plan is a good place to start. This is because contributions to these plans are often taxed at a lower rate. This lower taxation can allow for more money to be put into these funds instead of trying to save all by yourself.
In some companies, there will be matching funds up to a certain point, as well. Putting in the maximum to get these funds can truly help boost the amount that a person will get in their retirement years. Steady contributions will help grow these plans at a controlled rate.
A 401K is rarely enough to pay for modern retirement by itself. Especially when someone is looking at 20 years or more on a plan designed to pay for 10. This is where personal savings attempts come into play.
IRAs or Individual Retirement Accounts allow up to $5,500 in contributions every year. Over the course of 20 working years, this can well exceed over $100,000 for retirement. This amounts to less then $500 a month put into the account. Spreading the contributions out like this will also aid in making it seem like less.
When thinking about Social Security, it is important to keep the number 40 in mind. This is because Social Security generally pays 40% of what an individual was making before they retired. To live the same life as you did before retirement, you will need to make up that 60%.
Take the 401k and the IRA and divide them by 20 years. If the number does not come out to 60% of your yearly income, additional savings will be needed. These can be in the form of a basic savings account or any other form of savings.
Many individuals prefer to save using bonds that will mature when they have reached the age of retirement. This keeps the money away from the individual and keeps it growing at a specific rate as well.
Overall, learning how to plan for retirement is simple and easy. Understanding the numbers allows you to truly understand what you will need when the time comes. Assuming a current standard of living gives you a starting place that ensures you will be comfortable for a long time to come.