If you want the simplest formula to save up for retirement, all you need is to estimate the amount of money you might require for the basics — health care, essential living needs, and travel — and for your entire life as a retiree. Afterward, deduct this number from your retirement age.
How Much Do You Need?
You could crunch the numbers yourself or get professional help, but the main thing to remember is that you should save money as much as you can. How do you do this? Below are some ideas:
- If you’re past 50 years old, you could save a bit more by making a catch-up contribution. You could increase your savings as much as $3,000 for the simplest contribution plans and up to $6,000 annually for more defined plans.
- Consider 401ks, 457s, and 403b, as a majority of employers go for these contribution plans. While these were never meant as retirement programs, these are the only ways more than half of American employees save up for their retirement.
- Open a 401k or Roth IRA. While these tax the money you put into your plan, withdrawals are tax-free if you’re older than 59 years and six months and you invested money for five years at least.
- Consider investing on the side. You could still open a conventional or Roth IRA or a 401k on your own if you are self-employed. If your health plan is high-deductible, you could invest in an HSA or Health Savings Account. Take note that you won’t be taxed if you use the funds for healthcare expenses, but you could also use the funds for supplementing your retirement. Withdrawals are taxed, however.
Funding for Retirement
How could you possibly fund your retirement? If your employer gives the option to put your income in an automatic and predetermined escalation or enrollment — you contribute more if your income increases — then go for it. You could likewise go for a target-date fund within your 401k, consider a standard savings program, or at least make the most of your bank’s cash management tools in Eagan.
Put simply, you can fund your retirement if you start early. Know how much you need and start allotting money every year. That's already a good start.