When it comes to retirement saving, time can either be a friend or a foe. This month’s blog is directed at anyone reading this who still has a bit to go before needing Assisted Living Care but doesn’t want to get caught off-guard when that day arrives.
Here’s how to save for retirement at various ages:
At age 25…
By now, you should be in the workforce and moving up the career ladder, even if you aren’t where you want to be on the corporate ladder yet. Time is on your side because you can start contributing to a tax deferred individual retirement account (IRA). Ask if your employer will match part of your contributions to any sponsored retirement plan such as a 401(k). Financial experts say putting aside $50 or $100 each month over a period of decades can cause a snowball effect, growing that money with accumulated interest.
CNN Money’s Ultimate Guide to Retirement gives this example: “Put aside $3,000 a year in a tax-deferred retirement account for 10 years… By the time you reach 65, your $30,000 investment will have grown to more than $338,000, (assuming a 7% annual return), even though you didn’t contribute a dime beyond age 35… Now let’s say you put off saving until you turn 35, and then save $3,000 a year for 30 years. By the time you reach 65, you will have set aside $90,000 of your own money, but it will grow to only about $303,000, assuming the same 7% annual return.” Think long-term so there will be enough money in retirement years to live comfortably. When you’re a young adult, you can be more aggressive in your investments than someone nearing retirement age.
At 35 years of age…
Review your company’s retirement benefits, if any. Build up and keep an Emergency Fund Savings Account with a minimum of three months’ worth of living expenses saved in a checking or savings account. This will not only cushion you in case of an unexpected job loss but also give you the mindset of saving for rainy days. The best way to determine your savings target is to use an online calculator like this one: http://cgi.money.cnn.com/tools/retirementplanner/retirementplanner_101.jsp?iid=EL
If you are just now starting to think about retirement, you will want to max out your contributions to tax-favored retirement accounts like a traditional IRA. You may also want to rein in your spending.
At 45…
Focus on paying off debts (starting with your highest interest credit card) and keeping tabs on your health with regular exercise, a healthy diet and checkups to monitor blood pressure and cholesterol. By this age, you may have kids out of college and a mortgage paid off, so redirect any available funds to retirement accounts as you can. Consult your financial planner to determine whether a more conservative approach to investments is advised. You may want to gradually shift more into bonds to protect the money you’ve accumulated.
To get a grasp on your trajectory, calculate your retirement budget, factoring in anticipated fixed sources of income (pension, annuity income, earnings, Social Security, etc.) and costs to maintain your desired quality of life. Don’t forget to include taxes you’ll have to pay. As a rule of thumb, you’ll need 70% of your pre-retirement yearly salary to live comfortably.
At 55…
Look into Long-Term Care Insurance. According to the American Association for Long-Term Care Insurance, “the best age to apply is in your mid-50s. You can lock in your good health… Once you reach your 50s your health almost never gets better (even if you diet and exercise). If you are 50, chances are that you leave your doctor’s office with some new prescription in hand. That drug may help you live a long life. But it’s those changes in our health that can make it harder or even impossible for you to qualify for long-term care insurance. Insurers offer discounts to applicants who are in good health. These discounts are locked in. You do not lose them if your health changes. Premiums for long-term care insurance are based on your age when you apply. Costs increase on your birthday. The annual rate increases are generally 2-4 percent in your 50s but start to be 6 to 8 percent per-year in your 60s.” Long-term care insurance protection should grow to keep pace with rising costs.
When forecasting the retirement savings picture, don’t forget to plan to pay for unexpected health care expenses decades ahead. The average woman now lives 81.2 years, the average man to 76.4, so use that as a starting point to guesstimate your own longevity.
At 65…
Assess where you are and extend your retirement date an extra year or two if needed. Revisit your housing options. If your home is too big, consider downsizing or moving into a senior living community, using any money left after selling the home to supplement your nest egg, suggests Sandra Timmerman, a nationally recognized gerontologist. Medicare begins for you, but on average you should only expect it to cover about half of your total health care expenses.
If you are physically able, delaying your work retirement to, say, age 68 can postpone withdrawals from retirement accounts, giving savings more time to grow and potentially increasing the size of a monthly social security benefit. Working part-time can also help.
To help with planning your retirement, use this tool to answer a few questions: http://fc.standardandpoors.com/sites/client/tda/tdap/calculator.vm?siteContent=5196&topic=5035
At the age when you want to move to Assisted Living…
Contact Regency to set up a visit to your home to talk about your plans. To learn more about Regency, call us at (205) 942-3355.