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How much to save for retirement will mean something different to each person. Do you plan to stay in your current home or move? Are there things that you want to do, like travel overseas? Your retirement lifestyle is an important factor that will impact how much you need. If you want to know how to afford the dream lifestyle after retirement, read here to learn more.
How Much to Save for Retirement
When you’re tackling financial planning for retirement, the basic steps you need to do is:
- Make a Plan – Figure out what expenses you will have in retirement (i.e., paying on a mortgage, health insurance, etc.) and what activities will cost money you will spend your time doing.
- Know your income and spending habits – Start your retirement budget as soon as possible. When you transition to retirement, you will have a better view of what expenditures you will have. Review your retirement savings in the years leading up to the big day to calculate what your monthly income will look like.
- Supplement your income – Consider if there are ways to make additional income. Jobs after retirement could give you the chance to try out a “second career” or do something that you’ve always wanted to try.
Where you retire will have an impact too. If possible, try to choose a more affordable place. Otherwise, it could affect your plans on when to retire, and you may end up having to delay retirement for a few years.
Determine Your Retirement Lifestyle
The lifestyle you plan to live in retirement will significantly impact your saving for retirement goals. There is a big difference in how much money you need if you plan to pay off your existing home and live a quiet life, watching over grandkids overtaking a cruise or flight every few months or living on a golf course.
Consider Hiring a Retirement Consultant
You should also work together with a retirement consultant, especially if saving for retirement seems overwhelming. These consultants work on financial planning for retirement for various clients. Their expertise can help create the best retirement plan based on your financial condition. They can calculate how much you will realistically with your plans on when to retire.
The Best Retirement Plans
Starting early and contributing to your retirement plans to your maximum financial capability will get you to your retirement goals. What retirement plans should you open? Here are the ones that the experts recommend:
This company-sponsored retirement account is a popular benefit that many organizations provide for their workers. There are other versions of this plan for not-for-profit organizations, for example, but they work similarly. These plans allow you to invest a percentage of your paycheck before taxes. You don’t have to pay taxes on these savings until you start withdrawing it.
These contributions come automatically as a payroll withholding exception. Many employers will also match their employee’s contributions up to a certain percentage. 401(k) plans have grown in popularity in the last several decades as employers have shifted away from offering pensions. Employees must choose the investments to hold within these accounts from what is offered by the employer. Typically what’s provided is a selection of stocks and bond mutual funds and target-date funds that have a certain amount of risk based on when a person expects to retire.
Individual Retirement Account
This tax-free savings account is set up with a financial institution. The advantages of these accounts depending on the type of IRA you open. One of the popular types is the traditional IRA, which uses contributions with money that you can deduct on your tax return. For example, if your income is $70,000 and you contributed $6,000 to your IRA, your taxable income is lowered to $64000. Interest grows tax-free until you start withdrawing.
A traditional IRA can be opened at a bank, brokerage, or robo-advisor. If you open one with a brokerage that will allow you to invest in stocks and bonds. Banks typically offer IRAs in the form of savings accounts and Certificate of Deposits. The IRS sets the contribution limits for each upcoming year. By 2021, you can contribute up to $6,000 or $7,000 if you’re 50 or older.
If you withdraw from a traditional IRA early, you have assessed a 10% penalty. Additionally, those withdrawals will be taxed as income. It would be best if you also started taking distributions at the age of 72.
Another type of IRA, your contributions are made with taxed money. So your money grows tax-free, and withdrawals are too. Roth IRAs were first introduced in 1997, making it the newer of the two IRA options (the traditional IRA was started in 1974). The contribution amounts on a Roth IRA is the same as a traditional – $6,000 and $7,000 for individuals 50 and older.
There are income-eligibility restrictions on these types of accounts. Individuals who make less than $125,000 or married couples that earn up to $198,000 (and file jointly) can contribute. Another difference between the two types of IRAs is that there are no required minimum distributions on a Roth. That means you don’t have to withdraw money when you reach a certain age. It makes them a great option as a wealth-transfer vehicle.
There’s a little bit more flexibility with a Roth when it comes to withdrawing funds early. The 10% early withdrawal penalty and paying taxes on withdrawals can be avoided if:
- At least 59 and a half years old
- Are permanently disabled
- Your beneficiary/estate withdraws the money as a result of your death
- The money is being used for a first-time home purchase
Making the Transition to Retirement
Going from working five times a week to sleep every day can get old after a while. Many people struggle during this time with how to spend their time. And there are some key things you should get taken care of before or early into retirement. To make a smooth transition to retirement, follow some of these tips below:
- Put together your retirement budget.
- Start building and growing your social network.
- Take care of your health.
- Consolidate and simplify your finances
- Write or update your estate plans.
- Create a “Bucket List” of things you want to do after retiring
- Keep learning new things.
Works Jobs After Retirement
Whether you need to supplement your retirement income or looking for something to do, working might be in your retirement future. Get creative with jobs after retirement. Get work as a barista as you’ve wanted to do in college but never got the chance to. Try out a “gig” job that allows you to work when you want to do it.
Here are a few ideas on some great jobs to consider after retirement to try:
- Accounting: Temporary and part-time accounting jobs are always in demand. If you have the skills learned from your career, why not give it a try? These positions are often on an as-needed basis and can be done remotely.
- Antique reseller: Buying and selling antique furniture can be a lucrative side hustle. You will likely need to do some refurbishing in the process. Find goods in local antique shops, thrift stores, etc. Use eBay, Craigslist, and Etsy to sell them.
- Write books – It’s never been easier to become a writer with the options out there for self-publishing. If you’ve always had a passion for writing, retirement is a good time fulfilling that dream.
- Delivery driver – Everyone nowadays seems to be doing a lot of online shopping, which has driven up the demand for delivery drivers. Amazon, UberEats, and other companies need drivers to get food and other products to customers. The flexible hours allow you to work around your schedule.
- Dog walker – Get in some exercise while also making extra money walking other people’s dogs. Companies like Rover can match you up with customers, or you can post flyers in pet stores, coffee shops, etc.
- Handyperson: Are you the one who helps people with a home project or repairing a broken faucet? Help others with their odd jobs by becoming a handyman. Consider getting certified and insured before going into this field.
- Online Teaching: There are several websites where you can get started becoming an English teacher, like VIPKID. The work is flexible, and you can work remotely.
- Public Service – Get paid while also giving back to the local community. Find a part-time position working with a school board or other public service position. You can feel good about doing something good and purpose-driven.
- Event staff: Helping out at events at concert halls, theaters, and performing arts centers is especially fun when you’re a fan. As a bonus, you’ll also be eligible for free or discounted tickets and other perks.
Real estate: Real estate agents make connections with others to find new business. They work with buyers and sellers during the transaction and get paid a commission for each house they sell.