How to Save for Retirement

The Golden Years are when the lifetime of hard work and sacrifice is supposed to pay off. Unfortunately, many senior citizens are discovering that their nest eggs will not amount to much due to rising cost of living and unexpected medical expenses. While there is no way we can reduce the general cost of living, we can ensure that our retirement savings are up to the tasks.

According to the 9th Edition of Personal Finance (Kapoor, Deblay, Hughes, 2009) there are several questions you need to ask yourself as you begin to either start or expand your retirement planning. Answer yes, no or uncertain to each of the following questions.

1. I can depend on Social Security and my company pension to pay for my basic livinig expenses.

2. Reviewing my assets to ensure they are sufficient for retirement is a sound idea.

3.My spending patterns during retirement will probably not change that much.

4. The place where I live during retirement can have a significant impact on my financial needs.

5. My Social Security benefits will be reduced if I retire before age 65.

6. To supplement my income, I may want to work part-time or start a new part-time career after I retire.

Each of these questions asks you to establish what you think about your retirement. It is naive to think that Social Security is going to cover your full retirement. Social Security is designed to replace about 40 percent of your working income. However, you will need around 80 percent to  have a comfortable retirement. So how does this affect you? You will find out as you go through the questions.

Number 2 asks you to consider going through your assets to establish if they are going to be enough for you to survive on. This means taking more than a cursory look at your savings vehicles such as your 401k and IRAs.  Are you putting maximum efforts into these vehicles? Retirement can last a quite a long time and you do not want to spend it scrounging for your next meal. The sooner you begin taking advantage of some type of saving vehicle.

Is your home paid off? If not how much longer until it is? Remember owning a home is an asset, make the best use of it that you can. Are you still making car payments; for how much longer? While you may no longer be paying for your house or transportation back and forth to work, other expenses are likely to rise. You may have children who need financial help after college, your medical costs are going to rise or you may face the death of a spouse. When checking your assets be sure to include your insurance coverage as well.

– check your death benefits(for you and your spouse)

-medical and dental coverage( you may be eligible for secondary benefits under your spouse or through Medicare).

Think about what you said about the first question. Do you really believe that Social Security and the retirement benefits you receive from your job will be enough? It might be if you have little to no debt. If like most people you plan on living the high life, you may find that you need to have at least what you were making while you were working. In many cases you will need more.

Questions 3 and 4 ask you to look at your spending habits and how they will affect your ability to retire in comfort. Living beyond your means could end up piling on more debt than you would like to be handling at that time. Retirement is not the time to take out a second mortage on your paid off home to make useless purchases.

As we journey through this life we all want to have a little extra fun. Be sure that you are not compromising your retirement when you purchase that shiny new car. Ask yourself are you putting your retirement on the line when you are eyeing that first class flight to Las Vegas. In short, the money spent on those fabulous shiny new playthings and expensive vacations can be put to better use.

Most of us know how to save up for those special one-time purchases; yet saving for retirement is last on the list. More than half of workers expect to live as good if not better than they do now when they retire. Unfortunately, only 20 percent of them have actually begun to save seriously for that glamorous retirement.

Making a contribution of $200 a month in something as simple as savings account can earn you big money in the long run.

($200 x 1.10%)12 =$2640

Break down- $200 a month with a 1.10% interest rate; then multiply by 12 months=$2640 (this is based on the 2010 interest rate of a savings account with ING.)

Payments made by Social Security are regulated by the amount of credits you have received over the life of your employment. This is generally determined by the year in which you were born. For example if you were born in 1929 you will need 40 credits in order to receive Social Security benefits when you retire. However, to earn a credit you must make a certain amount of money in a given period of time.

Currently the full retirement age for anyone born after 1937 is 67. You may still be able to retire before then however, your benefit amount will be reduced by about 30 percent. Let’s face it, we are living longer these days; we have more time to work and earn our own living. Today a person can plan to spend five or more years (usually more) in retirement. If you are planning to apply for Social Security benefits make sure that you are receiving the highest amount that you can receive.

Retirement for many is a time to work on or for something we truly enjoy doing. Instead of long days in an office at a position we would rather shoot ourselves over we have a chance to do what we love. Sometimes it happens that all we want to do is relax and enjoy not having to punch a clock for someone else. In either case you must consider do you want to work or will you need to work.

In either case a part-time job can help alleviate the tension of having too much time on your hands and nothing to do with it. Your previous employer may be willing to offer you a position on a contractual basis. This way you can earn income by training your old employer’s new employees. You can keep your mind sharp and be of service to those who need you on an as needed basis.

If you would like to start a whole new career part-time you should research it a bit first. Know what it is you need to do to step into this career path. If you need additional education, be sure your finances will be up to it; school loans and grants will only get you so far. The last thing you need is to be paying off a full time student loan on a part-time job. The idea being that you want to work not need to work.

By asking yourself a few simple questions you can find yourself on the path of retirement freedom. Benjamin Franklin once said “A penny saved is a penny earned.” Remember this and take it to heart as your retirement will only bear the fruit of the seeds you plant.