You haven’t started saving for retirement yet? or are you behind on your retirement savings? It’s never too late to get started and catch up on your retirement savings. Follow this simple guide to get you going on your way to a happy and merry retirement and gain financial freedom.
On average women work fewer years than men.
We as women are more likely to take time away from our careers due to having children or caring for a family member for example.
Also, we tend to live longer than our male counterparts.
Therefore we need to plan accordingly since we will be living in retirement for more years.
Unfortunately and sadly for us, in this day and age women still earn less than men for the same job and duties performed.
The gender gap in retirement readiness still persists even in this new decade the 2020’s.
According to the U.S Census Bureau, women earn 80 cents for every dollar earned by men for the same job and same responsibilities.
This is outrageous!
As a result of working fewer years and earning less income, our social security benefit is lower as well.
Therefore we need to plan for retirement differently and focus on our own specifics concerns.
This is a roadmap that will allow you to maximized for your retirement savings.
- Start saving for retirement NOW – YES NOW do not procrastinate
- How much should you save
- Choose an investment vehicle
- Automate your contributions
Start Saving For Retirement Now
It is never too late to start saving for retirement.
Start by creating a budget or if you already have a budget start getting serious with your budget.
I recommend the budget percentage method, it is one of the most simple and uncomplicated ways to budget.
Reduce your expenses to the bare necessities and use the surplus to put towards your retirement.
Also, plan to delay taking social security.
The longer you wait the more you get back.
For every year you delay claiming social security after your FRA (Full Retirement Age) you get approximately 8% more each year.
On the other hand, if you decide to tale social security at the age of 62 (that is before your (FRA) full retirement age, then you will receive 25% less than what you were entitled to get at your FRA.
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How Much Should You Save For Retirement
The general rule of thumb for retirement is to save 10%-15% of your income.
Of course, if you can allocate more money towards retirement the better.
Remember if you are already behind in retirement and trying to catch up you need to save aggressively. Stick to your budget and make strides.
If you are already above the age of 50, take advantage of the catch-up contributions.
You will see with compound interest it starts growing faster.
Besides saving for retirement it is ideal to also have an emergency fund.
This comes in handy when those unplanned situations arise like the refrigerator stops working, your pet gets sick or your car tire gets damage.
If you have no saving and don’t know where to start I have used some simple steps to start saving money even with a low income
Choose Your Investment Vehicle
Don’t be afraid of investing and putting your money on the stock market.
The market goes up and down all the time and is not reliable year to year.
But historically it has returned on average 7% annual return.
Your portfolio allocation should reflect your retirement time horizon.
For example, if you are age 40 and planning to retire at age 70, you have 30 years to invest.
Your allocation can be more aggressive since you have time in your hands
On the other hand, if you are age 55 and planning to retire at age 65, you only have 10 years to invest.
While you want growth you also want asset preservation.
So a modest conservative asset allocation might be the right choice for you.
At the end of the day asset allocation is a personal thing. It all depends on your risk tolerance.
You invest in the market for the longterm 10-40 years.
If you just keep your money in a savings account it will never grow.
It will not even keep up with inflation.
If you park your money in the bank you will not even beat inflation.
There are a few retirement plans available to you. Each with different tax advantages.
Traditional IRA
A traditional IRA (Individual Retirement Account) is a type of retirement account that allows you to put money away for retirement and grows tax-deferred.
Contributions to an IRA reduces your taxable income. This is a great tax advantage.
Pay fewer taxes and save money. Win-Win situation if you ask me!
For the year 2020 theIRS contribution limitshave been set to:
- $6,000; For anyone up to the age of 49.
- $7,000; If you are 50 years of age or older.
Roth IRA
A Roth IRA is the sister account of the Traditional IRA. Same contribution limits.
For the year 2020 theIRS contribution limitshave been set to:
- $6,000; For anyone up to the age of 49.
- $7,000; If you are 50 years of age or older.
With a Roth IRA, you make contributions with money already taxed.
But, the beauty is that your money grows TAX-FREE in a Roth IRA.
Also, you don’t pay any taxes when taking money out of a Roth IRA.
Contributions to a Roth IRA are not tax-deductible.
Because your contributions are made with after-tax money.
Just like a traditional IRA your contributions, capital gains, and dividends grow tax-free.
It is worth to mention that all contributions made to any IRA accounts or a combination of IRA accounts can not exceed the $6,000 yearly limit.
This limit applies to contributions made across all IRAs.
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Retirement Saving Plan 401k
A 401(k) is a qualified plan, an employer savings plan.
Also known as a defined contribution plan.
If your employer offers a 401k or 403b this may be a very good option for you.
Especially if your employer offers any matching.
In the case your employer offers matching… particpate at least to the matching point.
NEVER leave money on the table.
The 401(k) account is funded with “pretax’ money. In other words, your contributions are taken out of your paycheck before taxes are deducted.
To learn more about 401k, how they work, the advantages and benefits, how it helps reduce your taxes and how to set up one read my post Complete Retirement Guide to 401(K).
The limit on employee elective deferrals to a 401k plan is:
- If you are of age 49 and below; $19,500 in 2020 up $500 from ($19,000 in 2019)
- If you are of age 50 and up, you have the option for a catchup contribution of $6,500 in 2020 up $500 from ($6,000 in 2019) for a total contribution of $26,000.
Automate Your Contributions
The best thing you could do is to automate all of your contributions.
Set it and forget it!
If you are participating in your company’s 401k, the contributions are automatically set to be deducted of each and every paycheck.
If you are contributing, to an IRA you can set up the contribution to be deducted out of your savings account or checking account.
You control the frequency.
Let’s say you can contribute monthly, biweekly or weekly.
It is up to you!
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In closing, I just want you to start taking control of your finances.
Become financially independent, take control of your lives.
Even if all you can save is a small amount of money.
JUST START!!
Feel free to share ideas and success stories of how you are planning to start saving.
Or how much far into your saving journey you are right now.
Let’s share this information and motivate each other.
LET’S START SAVING!
