If you can remember when the Beatles first sang “When I’m 64,” you’re probably fast approaching retirement or already there. When Paul McCartney wrote, “We shall scrimp and save,” however, he may have been wishful thinking: Nearly half of U.S. workers report having less than $25,000 in retirement savings.
No matter your age, the time to start planning and saving for retirement is now. Those in their twenties or thirties have several decades for their savings to grow, but if you’re already in your forties or fifties, you’ll need to save far more aggressively to make up for lost time.
Here are a few tips to kick your retirement savings efforts into high gear:
Maximize tax savings. If your employer offers a 401(k) or similar plan, put in as much money as you can. The maximum 2007 contribution is $15,500 (plus another $5,000 for those 50 or older). By contributing on a pretax basis, you lower your taxable income, which in turn lowers your taxes. And, your savings and their earnings grow tax free until retirement, when your taxable income is usually lower.
Take advantage of any company-matching contributions, which can add hundreds or thousands of free dollars to your account every year. If finding more money to contribute is a problem, make a pledge to put your next pay increase directly into your plan.
Practical Money Skills for Life, a free personal financial management program sponsored by Visa Inc., features a guide to 401(k) plans at practicalmoneyskills.com/learn/life_events/retirement.
Contributions to a regular Individual Retirement Account (IRA) may also be tax deductible and you won’t pay taxes on earnings until your retire. Or, with a Roth IRA, you set aside money that’s already taxed, but earnings are tax-free at retirement. The annual IRA contribution limit is $4,000 ($5,000 for 50 and older). Go to www.irs.gov/retirement for more information.
Delay retirement. People today typically live much longer than their parents, so their retirement savings usually must last longer. By delaying retirement a few years or at least working part time, your savings can grow considerably before you need them. Plus, the longer you delay tapping into Social Security, the larger your monthly benefit.
Do a financial inventory. Many people don’t know their net worth or how much money they’ll need at retirement — some experts say at least 60 to 80 percent of current income. Start by reviewing any pension, 401(k), IRA and other savings and assets you own, as well as your “Personal Earnings and Benefit Statement” Social Security mails each year.
Enter these amounts into an online retirement calculator to roughly estimate how much money you’ll need to retire comfortably. You’ll find good ones at Fidelity Investments (www.fidelity.com/calculators-tools/retirement-calculator/overview) and CNNMoney.com (www.cnn.com/business/calculators/retirement-calculator). Or talk to a financial advisor for more personalized advice.
Consider downsizing. Once your kids are gone, consider moving to a smaller, cheaper home. This will allow you to invest some of your current home’s equity for retirement, as well as pay less for utilities, property taxes, home repairs and other expenses.
Lower expenses. One big reason you haven’t saved enough for retirement is you may be spending more than you can afford. Best to start scrimping and saving now so you can be comfortable — when you’re 64.
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