Important things to understand about retirement savings
Make a retirement savings plan and revisit it regularly to stay on track.
Retirement may feel like a distant goal for most of your life. But whether you're just starting your career or mere moments away from the big day, there are steps you can take to improve your financial situation in retirement. Here are a few things to keep in mind:
How much you need to save will depend on your retirement lifestyle
Your vision of life and standard of living in retirement has a direct impact on the income you'll need to generate during your golden years. For example, a plan to travel extensively is likely more expensive than a retirement spent relaxing in a lakeside cabin and will require you to save more. If you can't save enough for the retirement you envision, you may need to rework that vision.
All plans flow from your current financial position
You can't go back in time, so your strategy has to be based on where you are today. Take a realistic look at your current financial situation, including all savings and debts, as well as any life and disability insurance policies you carry. You can use a tool like our retirement calculator to figure out whether you're on track. Even better, a financial professional can help you refine your goals and create a detailed plan.
Maximize your company's 401k matching program
Some companies offer a 401k matching program in which the employer may match all of or a percentage of your 401k contributions. Meaning for every dollar you put away, the company (wholly or partially) matches that contribution. Make sure you're contributing the maximum amount required to take full advantage of this program — if not, you're losing out on free money.
Delay taking social security benefits
Much debate exists about when to take social security benefits. It's possible to start taking social security benefits as early as age 62, rather than at full retirement age (which varies depending on when you were born) or even later. If you choose to claim benefits earlier, the monthly payment is less than if you chose to begin claiming benefits later. Depending on your life expectancy and other factors, it may make sense to delay taking your social security benefits for as long as possible to maximize your benefit. For example, according to current numbers, delaying social security benefits until the age of 70 could result in a 32% greater permanent benefit than if you were to tap in at full retirement age.
It's always a good time to increase savings
Because of compound growth, even a small increase of one or two percent in savings each year can add up over the long term. If you're close to retirement, catch-up contributions can also help boost your savings rate. If you leave a job, consider rolling over your 401k rather than cashing out. This can be an essential step in building retirement savings.
Knocking out debt can help stretch your savings
Getting rid of high-interest debt like credit card balances can free up room in your budget to save more. By eliminating debt before you retire, you won't have to factor loan payments into your retirement expenses.
Periodic reviews will help you stay on track
Review your retirement plans at least annually to make sure they still work for you. Keep in mind that you may need to make adjustments if your life changes — such as after you get married or have a baby — or if your health changes. If needed, you may want to consider working a little longer to make your retirement savings more secure.