If you have no idea how to start planning their retirement, you are not alone. Millions of people in the United States don’t know where they are going to get the money to support themselves when they retire. In fact, many have no clear idea of how much money they have right now.
The first thing to do is to figure out where you are right now. What are your current assets? What do you have in terms of cash, savings, and investments? What can you liquidate if you need more money? The financial figure you arrive at will be your starting point on how to plan for your retirement.
After this exercise, you may either be pleasantly surprised that you have more than you thought or disappointed because you thought you had more. However, remember this is where you are in the money game right now. It merely tells you about the pieces you now have on the money board game and their positions. It does not predict the end game.
There is a lot that you can do to change the results if you’re not pleased with the direction you’re heading. If, for instance, you own your own home, you can get a special type of loan when you turn 62 years of age. This is called a reverse mortgage, a home equity conversion mortgage that does not require you to make monthly mortgage payments, although you will still be responsible for your property and taxes and your homeowner’s insurance.
A reverse mortgage is just one of many strategies you can use to make sure that you have money when you are no longer working. Let’s take a look at things like 401(k)s, IRAs, calculating your financial needs, understanding social security, and managing health care costs.
Saving for Retirement
When it comes to saving for retirement, the two most often used vehicles are the 401(k) and the Individual Retirement Account (IRA).
A 401(k) is a retirement savings plan that your employer sponsors for you. It lets you save and invest part of your paycheck before the government taxes you. You don’t have to pay for the amount you set aside until you make a withdrawal. Before you open up a 401(k), be sure to understand the tax implications.
An IRA is another type of savings account that helps you plan for retirement. Like the 401(k) it offers a number of tax advantages. When deciding on getting an IRA, you have to look into two types of IRAs, the traditional IRA, and the Roth IRA.
Calculate your Financial Needs
When you understand how much money you are making and how much you are paying out, you can adjust your financial needs.
If you are making a lot of money but have a difficult time keeping it, then you can adjust your standard of living and find more ways to set money aside for your retirement. You can use this “found” money by creating a savings account. Later, when you have enough money, you can use the bulk of this money for investments.
On the other hand, you may not be making enough money, and it is a struggle to cover all your needs. In this case, you have to make some hard decisions. Do you need to find a better paying job or go back to school to be able to earn a higher income in another industry?
By calculating your financial needs, you can make adjustments long before you reach retirement age.
Understanding Social Security
Today, an estimated 57 million people receive some form of Social Security benefit. Out of this number, 87 percent are individuals over the age of 65. Social security should not be simply thought of as a retirement program. It offers a variety of other benefits like family, disability, and survivor benefits. The best way to understand social security is to make an appointment with a Social Security representative to ask about your eligible benefits. If you just want to get a broad understanding of how social security works and help you, then speak to a financial adviser, like a chartered public accountant or a certified financial planner.
Managing Health Care Costs
It can be frightening to think of how you can take care of your health when you age in the face of rising health care costs. Fortunately, these costs can be made manageable by setting up a health savings account (HSA) or a flexible spending account (FSA). You need a high deduction insurance plan for an HSA. However, you don’t need one for an FSA. These plans help with a variety of medical costs like doctor’s visits, buying prescription drugs, getting eye exams and glasses. There is also Obamacare, which is the colloquial term for the Patient Protection and Affordable Care Act.
Retirement planning is not the easiest thing to do, but you don’t have to do it alone. You can always get professional help from people who specialize in this field. They can help you analyze your current financial situation and then develop a plan on how to build your nest egg.