How do you know you are saving enough so you will be comfortable when the time comes for your retirement? Will you be able to fully support all of your needs during retirement? Here are some critical points that need to be followed in order to ensure that you are financially secure during retirement.
1. Save a minimum 15% of your gross salary each pay period
It was previously recommended to save about 10% of your gross income for your retirement. However, with the upward spiraling prices on consumer goods, health care and the general cost of living, it is wiser that you raise the minimum a notch higher to 15%. This amount can and should include the employer’s contributions, if any. If you cannot (or feel you cannot) contribute that amount from your current salary, consider taking a second job (part- time) and contributing the entire check into retirement savings. The main objective is to start saving.
2. Contribute the maximum possible to the 401(k) plan
Anyone who is younger than 50 years of age can contribute $16,500 to their 401(k) plan in 2011. This is the maximum you are eligible to contribute; this is the same limit that was set in 2009 and has remained unchanged since. Since tax laws are constantly changing it is important to stay abreast of contribution laws and make changes to your saving plans accordingly.
3. Take advantage of the “catch up” contribution
You are allowed to contribute a “catching-up” amount to your 401(k) plan once you are 50 years of age. Make full use of this opportunity as this means that you can still achieve your goal of financial self-sufficiency by the time retirement rolls around. The maximum amount that can be contributed toward “catch- up contributions” is currently $5,500, which is in addition to the regular (and maximum) $16,500 yearly contribution.
4. Contribute to both 401(k) and Roth 401(k)
If your employer provides both these retirement plans, you could (theoretically) contribute to both. However, the maximum you and your employer can contribute is still $16,500 until you are 50 and $22,000 after 50 years of age. Do not be disheartened that there is no tax deduction for Roth contributions; the tax benefits are offered at the time of retirement. Also, it is worthwhile to note that there is no income limit when you contribute to a Roth 401(k) – unlike Roth IRA.
5. Aim at saving (for retirement purposes) an amount equal to 10 times your last salary
How much should be saved for retirement? To be financially secure there should be a savings equal to about 10 times your last earned yearly salary. It is imperative that you set a realistic goal for your retirement savings. It is a fact that most people cannot live during retirement with less than that amount. Retirement savings are essential for maintaining your style of living, paying bills, covering medical costs and all other miscellaneous expenses through the remainder of your life. Plan for retirement methodically and stick to the plan with no deviation.
6. Take calculated steps if you are 10 years or less from retirement
Your last chance to make up for the time lost (and the money that should have been saved) is when the timeline reaches 10 years from the D-day. This is the last opportunity to make significant contributions for retirement. Here are a few suggestions to use in order to generate extra retirement savings:
- Choose to work a few more years past the retirement age (emergency measure, if all else fails)
- Use the “catch-up” contribution clause for adding funds to your 401(k) in a hurry
- Invest aggressively in stock options
- Look for additional income to save more money such as a profitable hobby, second job or a home based business
- Eliminate expensive luxuries(such as eating out, maximum cable packages and paying retail for everything) and use the money that is saved towards retirement savings
7. Increase your retirement benefits by postponing your claim for Social Security benefits
For each year, post your retirement age, that a claim for social security benefits is not made until the age of 70, there would be the benefit of an extra 8% increase in your yearly Social Security benefits. While for some it may not be feasible to make this postponement, if you are able, this benefit should be greatly considered. The 8% increase can result in a considerable amount of money.
Saving for retirement can be done at any age. It is important to design a plan, stick to it and resist the temptation to dip into your retirement savings. You must start saving for your retirement today, in order to live comfortably tomorrow.