Retirement should be a great time in your life, but too many people struggle to save for it. The good news is that there are simple steps you can take to help you prepare for your golden years.
In fact, if you just follow these retirement tips in 2019 and beyond, you'll set yourself on the path to a much safer future when you're a senior.
. Benefit from Tax Savings for Retirement Savings
Although the government does not directly provide money to deposit your retirement account, it makes investing for your future much easier by providing you with tax relief.
In 2019, you can invest as much as $ 19,000 in a $ 401 (k) account with pre-tax dollars, or as much as $ 25,000 if you are over 50 and are eligible to collect contributions. Depending on your income level and whether you or your spouse has access to a retirement plan at work, you may also be entitled to claim a tax deduction for a maximum of $ 6,000 in contributions made to an individual retirement account – or $ 7000 if you & # 39; is eligible for collection contributions.
If you are in the 22% tax bracket, saving a $ 6,000 investment can save you as much as $ 1,320 on your tax. Your contribution will effectively reduce your home income by just $ 4,680.
Every tax break is use-or-lose-it. So if you do not invest in 2019, you will forever abandon the help the government offers this year. Don't miss this free money.
2. Invest more than conventional wisdom suggests
You've probably heard that you should save 10% of your retirement income. The problem is that this probably won't be enough.
In 2018, the median household income was $ 40,247, according to U.S. Pat. Census Bureau. If you make the median, you are 30 years old when you start saving, you get 2% annual increases, and earn a return of 7%, you will end up with around $ 700,000 for retirement at 66, if you followed the 10 % suggestion.
While this sounds like a lot, it would only produce around $ 28,000 in income if you followed the 4% rule, which says you won't run out of money if you deduct 4% in retirement year 1 and adjust withdrawals for inflation annually.
Most financial experts suggest you have to pay around 80% of your salary before retirement when you leave the workforce – which in this example would be just over $ 80,000. Even when you take into account benefits for around $ 30,000, you would be $ 22,000.
And the shortage is likely to be even greater for two reasons. First, most experts believe that following the 4% rule is no longer safe, and that you need to withdraw less. And secondly, many seniors end up spending more – not less – than their pre-retirement income after leaving work.
To avoid the major financial problems that can arise from such a large shortfall, you aim to save 15% to 20% of your income instead of just 10%.
3. Don't forget to plan for your biggest pension cost
When you retire, do you think Medicare will cover most of your health care costs? Unfortunately, this is a common misconception. In reality, Medicare has large coverage gaps, doesn't pay for many things seniors need, and has high coinsurance costs.
There are various estimates of how much the elderly plan to spend on health care, but virtually all studies show -pocket expenses totaling hundreds of thousands of dollars. If you are not prepared for a significant portion of your nest egg to go toward medical treatment, you are not preparing properly for retirement.
If you have a high deductible health insurance plan, you can invest in a health savings account to cover medical expenses as a senior. If you are not eligible to contribute to an HSA, earmark some of your 401 (k) funds for care needs, or consider opening a separate retirement account that serves as your health fund. That way, medical bills won't make you shattered.
4. Do not sacrifice retirement savings for your children
Studies have shown that around a quarter of parents sacrifice retirement savings to cover the cost of their children – including college expenses. While it may seem helpful to spare your children from the scourge of student loans, it is a very bad idea to compromise your own financial security for your children.
Student loans can be repaid over a lifetime, and your children have their entire career to prepare for the future. However, if you are approaching retirement, time is the essence for you. You must be proactive when it comes to achieving your own financial goals – even if it means closing your bank to mom and dad for good.
5. Understanding how Social Security works
Social Security benefits are designed to replace only around 40% of pre-retirement income, so if you expect to live off of them as a senior, you make a big mistake.
It is important not only to know that social security will play a limited role in retirement. You must also understand how to maximize the benefits. For example, if you claim a Social Security claim before working for 35 years, you will receive less benefits because the Social Security Administration determines your monthly income based on the highest 35 years of income, adjusted for inflation. If you haven't worked for 35 years, some years of $ 0 earnings will be incorporated.
Demanding social security before the full retirement age – which is between 65 and 67, depending on the year of birth – can also result in permanent reduction to your monthly check. While the system is designed so that recipients generally get the same lifetime benefits no matter what age they first claim them, research from Stanford experts suggests that you should wait until the age of 70. This allows you to have the greatest possible control, which protects you from running out of money later in life.
No matter when you decide to claim benefits, do not act until you understand how the benefits system works. It can be very difficult to undo a claim once it has been made.
Start Following These Retirement Tips Today
Keeping in mind these 2019 tips and beyond, you can maximize your chances of a secure retirement and minimize the likelihood that you will experience serious financial problems as a senior. You only get one shot at preparing for retirement, so take the right steps today to assure yourself of a better tomorrow.