With the financial struggles of your 20s and 30s, retirement planning might be the thing furthest from your mind. It is not too early, however, to check to make sure you are on the right track to retirement. Planning for retirement is about more than simply putting money in a 401(k) or IRA every month. It also involves making sure your debts are being paid off and that you have a general idea of what you will need once you retire.
Determine how much income you want to receive each year of retirement. Typically, 80 percent of your current income is sufficient, according to an article published in September 2011 on the "Forbes" website. You won't have to pay Social Security tax or contribute to your 401(k) in retirement. You might need less income if you have major expenses, like your mortgage, paid off by retirement. You might need the same amount of income if you plan to live it up during your golden years. Think realistically about your desires and wants and aim for more savings, not less. If you decide that you will need 85 percent of your current income in retirement and you now earn $2,500 a month, you will need to bring in $2,125 a month in retirement.
Estimate the age at which you plan to retire and how long you expect to live after you retire. If you are 30 now, you might decide to wait until you are 70 years old to retire and you might live for 20 years after that. You will need 20 years of income and will have 40 years to save for it.
Look at the amount you have saved for retirement so far and how much you plan to save each year. For example, you might plan to save 10 percent of your monthly income. If you earn $2,500 a month, that translates to $3,000 per year. If you have a 401(k) that your employer matches, do not forget to include the amount of the match.
Use an online retirement calculator to determine how much you will need to save for retirement based on your anticipated income, age at retirement and current savings.
Make adjustments to your savings plan as needed if you are not on track. You can adjust the amount you save each month, extend the time until you retire or reduce the amount of income you hope to live on in retirement.
- Pay off any debts you have, such as credit card debt. Once you have paid off the debts, you can put that money toward your retirement plan.
- Don't forget about other potential sources of income in retirement. You might receive Social Security benefits or a pension from a former employer. Add the estimated amounts of this income when you calculate your retirement goals.
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