Do you have enough money saved for retirement? If you’re like the majority of Americans, the answer to that questions is probably a resounding no.
One survey found that 34 percent of Americans have no money saved at all, and 35 percent had less than $1,000 saved. That won’t get you very far in retirement, will it?
Don’t give up hope, though.
If you’re having a hard time figuring out your retirement money, keep reading.
Listed below are some tips that will help you calculate how much money you need to save for retirement, as well as tips on how to start saving money today.
How Much Retirement Money Do You Need?
Clearly, $1,000 isn’t going to last very long once you’ve retired. But how much money do you actually need to live comfortably after retirement?
There’s not one correct answer to this question, of course. But, the following tips can help you evaluate your needs and calculate the amount that will be best for you.
Pro Tip: Looking for an advanced guide about how much you need to retire? Read this extensive Retiring Right guide.
The 80 Percent Rule
Most financial experts say that you’ll need to replace 80 percent of the income you earned when you were working after you retire.
This number is based on a few assumptions:
- You’re no longer paying payroll taxes or making pension contributions
- Your mortgage will be paid off or nearly paid off
- Other expenses (commuting, clothing, food, etc.) will decrease
Of course, everyone is different and the above assumption might not apply to you. But, the 80 percent rule is still a good place to start.
Taxes and Retirement Spending
You may not have to pay payroll taxes once you retire. But, that doesn’t mean you don’t get to stop thinking about taxes altogether.
You’ve probably been depositing money into a retirement investment account (such as a 401(k) or IRA) for quite a while now.
Keep in mind that you will have to pay taxes on the money you withdraw from those accounts. The only exception is a Roth IRA since you pay taxes on your contributions before depositing them.
You may also be taxed quite heavily on your Social Security benefits. If your income is high enough, you could pay as much as 85 percent in taxes.
Federal taxes begin when income is greater than $25,000 for single adults and $32,000 for married couples filing jointly.
Health Care in Retirement
It’s also important to plan for health care costs that may arise as you near retirement.
Prescription drug use tends to increase in retirement, as does the chance that you’ll have to deal with hospital visits and potential health emergencies.
Keep in mind that Medicare doesn’t always protect you from rising health care costs. Consider setting up a health savings account or another, similar fund so that you have money dedicated to your health care once you retire.
Tips for Saving for Retirement
Now that you have a better idea of how much money you need to save for retirement, it’s time to go over steps you can take to make sure you have money to put away.
Manage Your Income
When it comes to managing your money to prepare for retirement, one of the first things you should do is work on cutting back everyday expenses.
Try to eat out less frequently, eliminate unnecessary purchases, and consider getting rid of extras like cable or magazine subscriptions.
These small changes can easily save you hundreds of dollars a month and thousands of dollars a year.
Put More Money Away
If it’s at all possible, try to deposit extra money into your retirement accounts. Consider taking the money you save by eating out less and canceling extra subscriptions and putting that directly into your 401(k) or IRA.
Take advantage of employer contribution matching, too. Make sure you’re depositing enough to receive the maximum match. Employees over 50 can make an additional catch-up contribution, too.
Look for a Side Job
Consider looking for a way to earn a little extra money. You don’t have to go out and be an Uber driver — unless you want to, of course.
Instead, you can try doing freelance writing or editing from the comfort of your own home, or you can tutor local students in subjects like math or a foreign language.
Don’t be discouraged if you don’t earn very much from your side job. Remember, it all adds up over time and can have a big impact on your overall savings.
Re-Evaluate Your Budget
It’s also worth sitting down and consider whether or not you need to modify your retirement lifestyle. Maybe you’ll need to downsize to a smaller house. Or, perhaps you’ll need to do a little less travel.
It’s not always fun to consider these cuts. But, it’s best to be realistic about your situation so that you’re better prepared for your retirement.
Be Conservative with Your Investments
It’s also a good idea to reconsider the way you invest your money.
It’s tempting to take chances on stocks with a potentially high return, especially if you’re starting later than you’d like. Remember, though, that stocks with a potentially high return also have a high risk.
When you get closer to retirement, it’s best to be more conservative with your investments. There’s less time to recover from losses.
Pay Off High-Interest Debts
Finally, be sure to pay off high-interest debts as quickly as possible. High-interest debts make it a lot harder for you to save money.
Consider transferring high-interest loan balances to accounts with lower interest rates and make paying off the debt your top priority. The sooner you do this, the sooner you can focus on saving more money for your retirement.
Consider working with an accountant or financial advisor to figure out the best approach for your specific financial situation.
Looking for More Advice?
Do you want to learn more about managing your retirement money or preparing for retirement in general?
Either way, consider joining our Retiring Right community today.
We offer a variety of resources — including a great blog — to help you plan for and get the most out of your retirement. Check it out today!