Many people look forward to retirement. However, planning for the future can be a bit daunting.
Lancaster Red Rose Credit Union is here to help with all of your financial concerns to help you make the most of your retirement.We tackled some FAQs to help you start saving!
1. When do I start saving for retirement?
To put it simply, you should start saving for retirement as soon as you can. It’s common to start saving in your 20s or when land your first, stable job. Not only does this allow you more time to save, it also gives you more time for your money to grow. Each year, your money “compounds” – the yearly gains your money accrues will generate their own gains the following year. Starting a retirement savings early gives you more time for the money in your account to compound.
2. Where do I save?
Individual retirement accounts (IRAs) and 401(k)s are the best option when saving for retirement. While the different accounts include different features, they usually offer tax benefits. Many plans are tax-deferrable, meaning the amount you contribute to retirement savings is exempt from income taxes until the the money is withdrawn. This allows your account to earn investment returns. Investment returns help your money grow over time through interest and dividends.
IRAs, traditional or Roth, are savings plans authorized by the Federal government specifically created to encourage people to save for retirement. Traditional IRAs allow tax-deductible contributions.
401(k) plans, one of the “defined contribution plans,” are retirement plans offered by employers. With 401(k)s, you decide what percentage of your salary you want to contribute each pay to retirement. The chosen amount is deducted from your paycheck and deposited automatically into your account through the payroll deduction.
3. How much will I need to retire?
Everyone has different ideas, goals, and expectations for life in retirement, so there’s no exact answer to this question. It’s suggested that you’ll need you’ll need 70% of your pre-retirement yearly salary to live comfortably after retirement. However, depending on your plans, you may need 100% of your annual income.
While planning for retirement, it’s important to make realistic assessments about the life you want to live in retirement and about the expenses you will have. Honest estimates will help you figure out how much you will need to live comfortably while retired.
You can roughly calculate retirement costs by analyzing your current expenses and estimating how they will change in the future. For example: you won’t be traveling to work, so you can eliminate commuting costs. Or, you may not have car payments anymore, but your health care costs may increase.There are many factors to take into account when it comes to determining your cost of living in retirement.
4. What if I can’t save enough for retirement?
Following a spending plan can help you save more for retirement. Adjust your current spending plan to account for retirement savings. Financial planners also suggest diverting more of your earnings into savings to build up your retirement savings account. Planning ahead, financially, will allow a smoother transition into retirement.
Have more questions or want more information on planning for retirement? Contact Lancaster Red Rose Credit Union today.