Talking About Money
Calculate What You'll Need
Most experts say you'll need 70 percent to 80 percent of your pre-retirement income after you stop working. Given today's life expectancies, you could easily live 20 years beyond retirement. Seeing just how much money you'll need in retirement may give you a few gray hairs, but it can also motivate you to start saving - and fast.
When it comes to saving for retirement, the sooner the richer. The table below shows that for every $100,000 in your retirement nest egg, you'd have to save $2,114 a year for 20 years. Wait just five years to start saving and your annual contribution jumps to $3,598. (That's 70 percent more.)
How Much to Save Each Year (in a tax-deferred investment with an 8 percent rate of return)
|5 years||10 years||15 years||20 years|
Employer-sponsored retirement plans, such as 401(k)s, provide one of the best places to squirrel away your savings. You won't have to pay taxes on the money you contribute until withdrawal during retirement.* Plus, the contributions don't count toward your current taxable income. Try to chip in the maximum amount allowed, particularly if your employer matches all or part of your contribution, which helps your money grow even faster.
Traditional and Roth IRAs can also offer tax advantages. With a traditional IRA, you may be eligible to deduct contributions, depending on whether you participate in an employer-sponsored plan and your income. Whether you can deduct contributions or not, your money grows tax-deferred until withdrawal at retirement. Contributions to a Roth IRA are never deductible. But they offer a real plus - tax-free (yes, you read that right) withdrawals at retirement as long as you meet all the requirements.
Tighten Your Money Belt
Cutting unnecessary expenses can help you pare down your debt and boost your savings. Creating a budget may help. List your expenses, starting with the most essential. Make retirement saving a priority. Finally, consider paring the expenses over which you have some control, such as entertainment. You don't have to live like a monk, but I'm sure you can find ways to cut down discretionary spending.
Lengthen Your Timeline
Time equals money when it comes to saving for retirement, so staying in the game for a few extra years can help you stay ahead. Remaining on the job allows your investments more time to grow and may boost your Social Security benefits.
Remember - it's never too late to start building that nest egg.
* Withdrawals prior to age 59 1/2 may be subject to a 10 percent penalty.
Jim Larranaga is Executive Vice President of Priority Publications, a Minneapolis-based publisher of financial newsletters.
Courtesy of ARA Content, www.aracontent.com, e-mail: firstname.lastname@example.org