In the first four parts of this series we’ve talked about creating a budget, paying off debt, establishing emergency savings, and rethinking college savings. Now that we’ve laid a foundation for saving more money, let’s talk about how to plan and use that money to get your ready for retirement.
#5. Check out a retirement calculator or meet with financial planner. PLANNING is the biggest part of a worry free retirement. You need to have a good grasp on how much money you will need to retire. A retirement calculator will help you land on a ball park figure. Here’s a simple one from CNN Money. More advanced calculators will also ask you about anticipated income and lifestyle plans to help set more realistic expectations. If you plan to spend your retirement traveling extensively, you’ll need a little more money than someone who plans to live in a small condo and work part-time as a cashier at the Piggly Wiggly. If using a retirement calculator is too overwhelming for you, consider hiring a financial planner. Forbes has a great articles “10 Questions to Ask When Chooosing a Financial Planner”.
#6. Max out employer based retirement plans. If your employer offers a retirement plan like a 401K definitely take advantage of that. Many employers will match your contribution up to a certain percent. If you work for a place that has a pension (like a teacher, hospital or government) you may be able to start a 403B retirement plan to supplement the pension income.
#7. Max out personal savings. After you’ve set up your emergency fund and maxed out your company’s retirement plan, you may want to consider having your own personal savings plan. A Roth IRA is a popular vehicle because you use after tax dollars; when you are ready to withdraw the money in retirement, you don’t have to pay taxes on it. But IRA’s aren’t the only options. There are lots of ways to save money: buy government bonds, set up a CD ladder, open a money market account. You could even put it in a coffee can in your sock drawer (although I wouldn’t recommend that because inflation will eat it up). The point is to take control of your retirement planning by creatively saving as much money as you can during your working years.