No matter what you dream about for the future, there are ways to retire on your terms no matter your budget. Use these five planning strategies to worry less and make sure you're financially prepared.
Increasingly, older Americans are choosing to “retire” in more active and engaging ways. You may dream of working part-time, becoming self-employed, volunteering in your community, or traveling while working remotely.
Whether you’re ready to exit a high-pressure job or you love your career and can’t imagine leaving it, getting prepared for retirement sooner rather than later is wise. Building financial security and actively maintaining your health now gives you more options and reduces any stress you may experience about the future.
A recent UnitedHealthcare survey found 46% of older adults worry about not having enough money as they age. Twelve percent of retired adults, or those who had retirement plans, re-entered the workforce because they needed the money.
Here are five planning strategies to make sure you can retire on your terms no matter your budget.
1. Determine your retirement savings goal
To know if you're on track, figure the total amount of retirement savings you’ll need. While you can’t be sure exactly how much you’ll spend in the future, you can create an estimate using your current budget.
Add up the total of your living expenses, such as housing, food, insurance and transportation. Once you’re retired, some costs may end, such as purchasing career-related clothing or commuting. Expenses such as travel, hobbies and insurance may also have a new impact on your budget after retirement.
A common target is to assume you will need 70% to 80% of your pre-retirement income after you stop working, but there isn’t a one-size-fits-all answer for how much retirement savings you should have. It depends on many variables, including:
- The age at which you want to retire
- The lifestyle you want to live—what are your hopes and goals for retirement?
- Your future debt, such as a mortgage or car loans
- How much you wish to withdraw from savings each year
- Your average pre- and post-retirement investment returns
- The amount of Social Security retirement income you’ll receive
You might have other assets, such as a mortgage-free home or income during retirement, to boost your future financial security. To help crunch the numbers, use an online retirement calculator or consult with a certified financial planner for guidance.
2. Use a spending plan that prioritizes retirement
Once you have an idea of how much you should save, you may find that you’re headed for a shortfall, especially if you’re getting a late start. Also, be sure to educate yourself on the costs covered by Medicare. There are a variety of options based on your needs that can make health care in retirement more affordable.
A popular planning approach is the 50/30/20 rule, which sets total limits on categories of expenses.
According to the UnitedHealthcare survey, 61% say being financially prepared for retirement is essential to their wellbeing. Now’s the time to tighten up your spending so you hit your goal and won’t run out of money in retirement.
A popular planning approach is the 50/30/20 rule, which sets total limits on categories of expenses. The idea is to spend no more than 50% of your after-tax income on fixed costs and necessities, such as housing, insurance, utilities, food, transportation and debt payments.
You limit spending on variable expenses, such as dining out, clothes, cable TV, travel and gifts to 30%. And the remaining 20% is for financial goals, such as savings and retirement contributions.
A key strategy is to fund your retirement goals first and then find ways to live on the rest by regularly evaluating and reducing expenses. Target your largest expenses first, such as housing and vehicles by downsizing when possible. It’s also smart to reduce small unnecessary expenditures, but slashing high costs can allow you to save more right away.
3. Create an earning plan to boost your income
As much as creating a spending plan can improve your financial life, creating an earning plan can be even more powerful. There’s a limit to the expenses you can cut, but there are a variety of options to earn more.
Consider working a seasonal job, renting a room in your home, or selling unused items through online marketplaces. Having even a small amount of extra income gives you more margin to save for retirement. And if you earn a raise, bonus, or have a cash windfall, use it to boost your retirement savings.
4. Invest using a retirement account.
The earlier you begin investing for retirement, the better off you’ll be. If you have a retirement account at work, such as a 401(k) or 403(b), take advantage of it, especially if your employer offers free matching.
You can contribute a percentage or a flat amount of your income up to the annual limit. For 2019, you can save up to $19,000. However, if you’re age 50 or over, you can contribute an additional $6,000 in “catch-up” contributions, for a total of $25,000.
With a traditional retirement account (such as a traditional 401(k) or a traditional IRA), contributions are made on a pre-tax basis. That allows you to defer tax until you take withdrawals in the future.
If you have a retirement account at work, such as a 401(k) or 403(b), take advantage of it, especially if your employer offers free matching.
With a Roth account (such as a Roth 401(k) or a Roth IRA), contributions are taxed upfront, but withdrawals taken in retirement are completely tax-free. You avoid tax on all growth in the accounts, which can add up to huge savings.
If you don’t have a workplace retirement plan or you’re self-employed, you can open an IRA and set up automatic contributions on a set schedule. Most investing firms offer free advice if you have questions about your plan or what investments to choose.
5. Stay physically fit
Staying fit is an often-overlooked aspect of retirement planning that can pay off in multiple ways. Maintaining a healthy weight and lifestyle helps you feel your best and save money on fewer doctor visits and prescriptions.
Once you retire or join Medicare, take advantage of fitness programs available with some Medicare Advantage plans.
Once you retire or join Medicare, take advantage of fitness programs available with some Medicare Advantage plans. For instance, Renew Active™ from UnitedHealthcare gives you access to participating fitness locations and an online brain health program. Being as active as possible may be one of the easiest ways to save money on health care over your lifetime.
Time passes quickly, so don’t underestimate how much small decisions and everyday actions impact your finances. We all want a future with more freedom, not less. By setting goals, creating a savings plan, using the right types of accounts and staying in shape, you’ll be on a path to a happy and comfortable retirement.
Disclosure: UnitedHealthcare is one of my business partners. Regardless, I only mention information, products, or services that I believe are good for my readers and all opinions are my own. Y0066_190910_031803_C