Top 10 Ways To Prepare For Retirement
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Financial security in retirement doesn’t just happen. It takes
planning and commitment and, yes, money.
Facts
Fewer than half of Americans have calculated how much they need to save
for retirement. In 2009, 13 percent of private industry workers with access to a
defined contribution plan (such as a 401(k) plan) did not participate. The average American spends 20 years in retirement.
Putting money away for retirement is a habit we can all live with. Remember… Saving Matters!
1. Start saving, keep saving, and stick to your goals
If you are already saving, whether for retirement or
another goal, keep going! You know that saving is a rewarding habit. If
you’re not saving, it’s time to get started. Start small if you have
to and try to increase the amount you save each month. The sooner you
start saving, the more time your money has to grow (see the chart below).
Make saving for retirement a priority. Devise a plan, stick to it, and set
goals. Remember, it’s never too early or too late to start saving.
2. Know your retirement needs
Retirement is expensive. Experts estimate that you will
need about 70 percent of your preretirement income – lower earners, 90
percent or more – to maintain your standard of living when you stop
working. Take charge of your financial future. The key to a secure
retirement is to plan ahead. Start by requesting Savings Fitness: A Guide
to Your Financial Future and, for those near retirement, Taking the
Mystery Out of Retirement Planning.
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3. Contribute to your employer’s retirement savings
plan
If your employer offers a retirement savings plan, such
as a 401(k) plan, sign up and contribute all you can. Your taxes will be
lower, your company may kick in more, and automatic deductions make it
easy. Over time, compound interest and tax deferrals make a big difference
in the amount you will accumulate. Find out about your plan. For example,
how much would you need to contribute to get the full employer
contribution and how long would you need to stay in the plan to get that
money.
4. Learn about your employer's pension plan
If your employer has a traditional pension plan, check
to see if you are covered by the plan and understand how it works. Ask for
an individual benefit statement to see what your benefit is worth. Before
you change jobs, find out what will happen to your pension benefit. Learn
what benefits you may have from a previous employer. Find out if you will
be entitled to benefits from your spouse’s plan. For more information,
request What You Should Know about Your Retirement Plan. (See below for more information.)
5. Consider basic investment principles
How you save can be as important as how much you save.
Inflation and the type of investments you make play important roles in how
much you’ll have saved at retirement. Know how your savings or pension
plan is invested. Learn about your plan’s investment options and ask
questions. Put your savings in different types of investments. By
diversifying this way, you are more likely to reduce risk and improve
return. Your investment mix may change over time depending on a number of
factors such as your age, goals, and financial circumstances. Financial
security and knowledge go hand in hand.
6. Don't touch your retirement savings
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If you withdraw your retirement savings now, you’ll
lose principal and interest and you may lose tax benefits or have to pay
withdrawal penalties. If you change jobs, leave your savings invested in
your current retirement plan, or roll them over to an IRA or your new
employer’s plan.
7. Ask your employer to start a plan
If your employer doesn’t offer a retirement plan,
suggest that it start one. There are a number of retirement saving plan
options available. Your employer may be able to set up a simplified plan
that can help both you and your employer. For more information, request a
copy of Choosing a Retirement Solution for Your Small Business.
8. Put money into an Individual Retirement Account
You can put up to $5,000 a year into an Individual
Retirement Account (IRA); you can contribute even more if you are 50 or
older. You can also start with much less. IRAs also provide tax
advantages.
When you open an IRA, you have two options – a
traditional IRA or a Roth IRA. The tax treatment of your contributions and
withdrawals will depend on which option you select. Also, the after-tax
value of your withdrawal will depend on inflation and the type of IRA you
choose. IRAs can provide an easy way to save. You can set it up so that an
amount is automatically deducted from your checking or savings account and
deposited in the IRA.
9. Find out about your Social Security benefits
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Social Security pays benefits that are on average equal to about 40
percent of what you earned before retirement. You should receive a Social
Security Statement each year that gives you an estimate of how much your
benefit will be and when you can receive it. For more information, visit
the Social Security Administration’s
Web site
or call 1.800.772.1213.
10. Ask Questions
While these tips are meant to point you in the right direction, you’ll
need more information. Read our publications listed below.
Talk to your employer, your bank, your union, or a financial adviser. Ask
questions and make sure you understand the answers. Get practical advice
and act now.
To find out more, call the Employee Benefits Security Administration at
1.866.444.3272 and request the following brochures:
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The following Web sites can also be helpful:
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