It is not as easy to retire as it used to be. With the cost of living going up and the recession woes still affecting many, those who thought they could retire at a certain age find they still have to work to keep up with the living costs. However, those who planned and saved from a very early age might find they are still on track for retirement. For those who were a little late to the table, retirement is still possible if you focus on what you need to do to reach your goal.
There are many soon-to-be-retirees that may not have the cash it takes to get out of the work force. But there are ways to boost your savings account even if retirement is just a few years away. Here are 5 tips for soon-to-be-retirees who still need to build up their nest egg and might get them in position for an early retirement:
Contribute to the Max
If you have employer-matched contributions, now is the time to be contributing enough to your retirement plan to get the maximum employer match. What portion the employer is contributing to your fund is essentially free money. In 2010, the maximum contribution to a 401k account is $16,500. If you up your current contribution to meet the maximum, you’ll see a remarkable difference in your retirement savings funds.
Anyone over the age of 50 has the ability to add an additional amount of cash ($5500 in 2010) to their 401k accounts in order to ‘catch up’. Depending on the amount of time you have before retirement and your ability to deposit extra cash into your 401k retirement plan, you have the potential to catch up on savings you may not have been able to achieve in the past.
Explore and Contribute to Tax-Free Accounts
In addition to your 401k account, you should also consider opening and contributing to a tax-free account like the Roth IRA. These types of savings accounts allow contributions that have already been taxed to grow tax free. In the end, you’ll be reducing your taxable income so you’ll owe less taxes and have another source of retirement funds to withdraw from during retirement. You might also consider rolling over your 401k account to a Roth IRA. You might be subjected to a tax hit the first year but you can actually split the tax liability over a two year period. Your monies would then continue to grow tax-free.
Don’t Take Social Security
If you don’t need to take Social Security payments at the age of 62, hold off. You can claim the full Social Security benefits when you hit your full age of retirement, usually between the ages of 65 and 67. If you can’t wait until full retirement age, the payments you receive will be reduced. However, if you can wait until the age of 70, the payments will actually increase. If you were born in 1943 or after, there is an 8% annual increase. Experts recommend that if you are not earning that percentage on your investments, you should hold off on taking Social Security and use funds from the investments first.
Prepare Your Budget Now
It is never too early to start planning for retirement. You are probably already planning how and where to spend your Golden Years but you also should be planning how you will survive them. List out all of the monthly expenses you have and calculate that against what age you would like to retire. You can add up the monthly expense total and multiple that number by 12. This will give you an estimate of how much you will need for each year of retirement just to pay the basics. You’ll need to account for all of the other plans you have in mind and then compare those numbers to the amount you have saved for retirement. The early you do your budget, the better understanding you will have about how much you still need to save.