The complete guide to planning for retirement

Oct 23, 2019, 15:10 PM by Nuvison 

Saving for retirement can be a daunting task. With so much information out there, just figuring out how to get started is confusing. That’s why we created this easy to understand guide for our members. Here you’ll learn the basics of retirement savings and the ways you can get started.

Retired Couple

First and most important: Start early!  

Before you start worrying about how much or where to save, just start! Time is your biggest asset. People who start saving in their 20s are so much farther ahead than people who only begin in their 30s or 40s.

When you’re young, retirement seems so far away. You have other things to worry about, like figuring out how to pay the bills today. But as any retired person will tell you, the years will go by faster than you expect. Get ahead of the game and take advantage of the power of compound interest.

Even if you can only afford to save a little bit now, say $300 a month, this still has huge returns over time. Over 30 years, that $300 dollar a month investment compounds to $160,182 at a rate of 2.5% APY. If you only have 10 years to save and do so at a higher amount of $1000 a month, you still will only get $136,254 at that same rate. Starting early makes a huge difference. It means you can save a smaller percentage of your income and get a higher return.

How much do I really need to save?

The biggest challenge people face is calculating how much money they’ll need to live off of once they retire. Take these factors into consideration when you are thinking about how much to save.

  • Reduced costs – You likely won’t need to replace the full amount of income you are currently receiving. If you want to maintain the same standard of living you have now, the number will be closer to 70-80% of your current annual income for each year of retirement.  This is because you have less to pay for during retirement. You’ll commute less since there won’t be work. You won’t need to put 10% away each month for retirement since you are already retired. Other expenses will disappear too, like home mortgages and caring for children.
  • Retirement age – The age you want to retire is the biggest factor in determining the amount since it means you will have greater or fewer years to pay for. If you want to retire at 65, you could need up to three decades of income. If you want an annual income of $80,000 during retirement, that means you need to save about $2.4 million to ensure you have enough.
  • Additional income sources – Do you plan on working a part-time job? If so, the money you earn can be used to fill the gap in savings for retirement. Another income source is Social Security, although the amount you will receive isn’t always easy to predict. The average benefit was $1,461 a month, as of January 2019. This can vary depending on past earnings and the age you start receiving benefits. Generally, higher incomes and later ages receive more monthly income.  You can find more information on benefits and when to obtain them on the Social Security Administration website
  • Healthcare costs – As you age, your medical costs will likely rise. Even if you got away with paying little throughout your life, you should plan for future expenses. This is one cost you definitely won’t want to be caught off-guard with.
  • Goals and plans – While the rule of thumb is to save 70% of your annual income, this number may be greater if you have big plans. World-travel, home renovations, and dream vacations add up—these costs will need to be included in your estimate if you want to have this kind of retirement experience. 

What if I can’t save the amount I need?

If the number you’ve come up with seems intimidating, remember you don’t have to save it all at once. You have time. Over the years, interest will grow your money, and continued regular payments will eventually accumulate into a larger sum of money. This is especially true if you’re young and still have income increases and career advancements to look forward to. If you are a little farther down the road and are just beginning to save, you still have many options:  

  • Re-evaluate your current budget – Look at where your money is going now. Could more of it go towards savings? Chances are, there are lots of non-essential costs that could be eliminated to make more room for paying your retirement fund. 
  • Modify your retirement plan – This could mean pushing retirement off for a few years and continuing to work full time, or delaying full retirement and working a part-time job for a period of time.
  • Know the rules – Older workers do have one advantage in saving: there are fewer contribution limits on their accounts than younger workers have. If you’re over 50, take advantage of this and try to structure your budget so you can max out the contributions to your tax-sheltered IRA or 401(k).

Where should I save?

Any kind of saving is beneficial, but there are specific accounts made for people trying to accumulate funds for retirement. These accounts come with tax benefits and higher interest rates, making your money go farther.

401(k)

If your employers offer a retirement plan, you should consider using it. There are a lot of benefits to saving here. Many companies match the amount you save to the account, allowing you to get more for every dollar. For example, if you contribute $500 a month, that contribution would be doubled to $1000. Another perk to an employer-provided 401(k) is the amount you can contribute. Unlike an IRA, a 401(k) generally won’t have a limit to the amount you can put in each month, meaning you can save far more than with other accounts. If you have lots of room in your budget for saving, this is a great option. 

Traditional IRA

The traditional IRA is the most common account used to save for retirement. It is suitable for almost anybody and will definitely be effective in helping you save. The main benefit is the up-front tax break. The money you put into the IRA is tax-deductible in the year you contribute it. In a sense, this makes saving for retirement cheaper, although you will have to pay taxes on that money later down the line when you want to withdraw it.

Roth IRA

With fewer restrictions and penalties for early withdrawal, the Roth IRA is more flexible than the traditional IRA. For this reason, many savers find it a better choice. Aside from the different rules, the major difference between a Roth and traditional IRA is the way the tax break is implemented. Roth IRAs don’t tax withdrawals during retirement. You pay taxes on the money in the year you put it in the account, but not later. So, if your tax rate is lower now than you anticipate it being in the future, the Roth IRA could make sense.

Nuvision has the savings options you need

Nuvision offers many options for retirement savings. From IRAs to certificates, you’ll find something to suit your needs. All of our accounts come with the benefit of competitive rates and Nuvision membership. To learn more about all of our savings options, click here

The information contained within this article is for informational purposes and should not be considered financial advice. Everyone’s financial situations are unique and you should consult a financial advisor for assistance with your particular situation and goals.

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