Retirement Planning: 7 Essential Things to Consider

Retirement Planning: 7 Essential Things to Consider

Seven Important Tips for Future Pensioners

Achieving financial security after retirement requires proper planning and money. Typically, US pensioners have an average life expectancy of 79 years. For those born after 1960, the retirement age is set at 67, irrespective of their gender. You can start getting a pension at the age of 62, but you will receive 20% less in this case. Therefore, you should take care of your pension well in advance and make a habit of saving money. Similarly, you can buy college papers and save your time.

About 5% of US residents aged 65 and above are not eligible for a government pension. A point or credit system is used to determine the size of a person’s pension. An average American gets 4 points for each full year in a job. You need to score 40 points to qualify for a pension. So, at least ten years of paid employment are required. You’ll have to earn at least $5,040 of taxable income a year to get 4 points. More than 4 points per year don’t count. When calculating your pension size, you should take into account the number of years you’ve worked and the amount of money you’ve earned. For example, if you’ve worked for 35 years, making $4,000 a month, then your pension will be $1,776 per month.

Government Pension

Called Social Security, the US retirement plan was introduced way back in the 1930s. The retirement tax of 6.2% is now deducted from wages/salaries of all American citizens. Employers are expected to add precisely the same amount, which means that the total deductions amount to 12.4%. State pension funds disallow investment in stocks or bonds issued by privately-owned companies. Pension savings can only be invested in government-issued securities which pay a low interest rate but are fairly safe.

Today, the average state pension in the US amounts to $1,350 per month. The maximum you can get is $2,650. As regards the minimum pension, it should not be below the minimum subsistence level of $980 per month; however, this applies to pensioners with a 30-year service record, which is why some can get even less than that. Mostly, these are persons with disabilities who are eligible for Supplemental Security Income.

A government-paid pension constitutes 60% of an average pensioner’s income; it ranges from 80% to 90% for low-income pensioners. Of course, it is not much for such a country as the US. They can consider themselves lucky if they have paid all the loans and have a roof over their heads by that time. Some retired Americans sell everything and move to South America or Southeast Asia where the cost of living is cheaper.

Additional Opportunities

In addition to Social Security Benefits, the US government provides its citizens with other money-saving options. One of them is the Individual Retirement Account (IRA), as well as 401k, which plays an essential role in the pension savings of most Americans. In essence, the IRA is an account for saving money for old age.

The money you save in your retirement account is not taxed, which is an important point for a country with a progressive tax rate. The IRA has a limit for deductions per year, and now it stands at about $5,500. As for taxes, you will pay them anyway when you reach retirement age, or you will want to withdraw money from your retirement account.

Essential Tips for Future Pensioners

1. Start Accumulate Savings and Keep It Doing All The Time

If you already started saving money for a pension or other purpose, then we recommend you keep doing that. Saving money is an excellent habit. You can start with a small amount, and try to increase it every month. The sooner you begin to save, the more time money you’ll end having. Make saving retirement resources your priority. Set a goal for yourself, develop a plan, and follow it all the time. It is never too late or too early to get your money savings.

2. Understand Your Retirement Needs

Experts estimate that an average pensioner needs at least 70% of their pre-retirement income. Those who did not earn too much may need up to 90% of their previous income to maintain their living standards after they stop working. Planning in advance is a prerequisite for getting a guaranteed pension. So, take control of your financial future. We recommend that all pre-retirees start scrutinizing publications like Savings Fitness: A Guide to Your Money and Your Financial Future and Taking the Mystery Out of Retirement Planning.
You can count your benefits by using the retirement calculator on Social Security Administration’s website or get a telephone consultation by calling 1-800-772-1213.

3. Save Money in Your IRA

You can deposit up to $5,500 a year in your retirement account and even more if you are 50 years or older. There are two options for you to choose from: a regular account or Roth IRA. Roth IRA lets you save money after taxes, which means that your savings will not be taxed, while your tax rate will be higher by the time you reach retirement age. Also, the IRA allows you to invest your money in securities. In this case, you take a risk because a wrong investment decision or crisis can wipe out all your savings.

A new type of Roth IRA, myRA, is a retirement account, which was designed to help people save money for retirement if they have no access to such a plan in their current job. A tax-deferred retirement account 401(k) was adopted as a replacement for pension funds within companies. For state officers, it can be 403(b).

Unlike the IRA (which is opened by yourself), 401(k) is opened by your employer. Therefore, you should know on what terms your employer has created it for you. Using the 401(k) plan, you can also take out a loan but it is not recommended. In this case, you will have to pay taxes twice: 1) upon repaying the loan 2) after reaching the age of 59.5 years old.

4. Talk to Your Employer About the Retirement Fund

If your employer can offer you a traditional retirement plan, make sure you qualify for it. You should take a look at your individual benefit report to see how much benefits you have. Find out what will happen to your retirement benefits before you are going to change your job. Learn whether you are entitled to any benefits from your previous employer. Also, it is useful to know whether you can get a benefit from your spouse’s retirement plan.

If your boss hasn’t offered you any retirement plan yet, you should ask them to create one. There are several options you can choose from: your employer may create a simplified plan; your employer can offer you a defined-benefit pension account. If you go with the second variant, you should top it up whenever you can. That way you will pay fewer taxes and be able to make use of a simplified procedure for making automatic contributions. Over time, you will see your interest accrued and tax payments deferred.

5. Consider Key Investment Guidelines

How you save money is just as important as the amount you can save. Inflation or a bad investment can wipe out your life-long savings. You should, therefore, know how your savings account or retirement plan is funded. Find out about the investment options related to your plan. To be on the safe side, you can split your savings into several investments. Such diversification will reduce risks and improve your chances of making more money. You may change your investment tools with time, but you should keep in mind that investment awareness and financial security go hand in hand.

6. Do Not Spend Your Retirement Savings

If you withdraw some of your savings, you will lose it along with the accrued interest. You will no longer get tax cuts and even have to pay a penalty for quitting the program. If you plan to get a new job, you can stick with your current retirement plan or open a new one after you get hired. Upon reaching a certain age, you’ll be able to withdraw money from your account without being fined. You can also withdraw funds for covering certain expenses, such as repaying a loan when buying a house or paying for training.

7. Ask Questions

The tips mentioned above can only guide you in the right direction. If you want to get more information, you should talk to your employer, bank officers, trade union leaders, or financial consultants. Once you get some practical recommendations, you should act accordingly. Join the ForumDaily community on Facebook to be informed about the latest news. You can also follow the related events at your place of residence.

Seems too complicated, doesn’t it? Yes, it is not easy. In fact, this is only the tip of an iceberg. If you’re not sure you can handle it alone, you should consider hiring a consultant and let them manage your retirement savings for you.

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