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Stressed About Retirement? Here's How to Ease Your Mind

Stressed About Retirement? Here's How to Ease Your Mind

If you're worried about your savings, follow these simple tips to get started on the right path.

Worried about saving enough for retirement? You’re not alone. A 2016 survey of 1,000 workers found that it was a top source of financial stress, regardless of workers’ ages. In fact, it was even more stressful than job security, paying off student loans or credit card debt.

Of course, worrying doesn’t help and prolonged stress can contribute to depression and anxiety. So, here are a few tips for how you can begin planning for your retirement.

Before you get started
There are a few factors that can impact future savings. Before you start putting money away, make sure you address these.

  • Emergencies and unplanned costs: Nearly two-thirds of us don’t have $500 in savings to cover an unexpected expense, such as car repairs. Before saving for retirement, accumulate a financial cushion for emergencies. How much should you set aside? Vanguard suggests three to six months of essential living expenses, like rent, utilities and car payments. Consider a larger cushion if your job is not secure or your income is erratic. Money market funds are a good investment for your emergency fund. They’re safe and you can easily access your money when you need it.
     
  • Credit card debt: Credit cards have advantages if you pay them off every month: they’re convenient, they offer travel insurance and other benefits and most give you cash-back rewards. Paying credit card interest, however, can prevent you from saving for retirement. If you have credit card debt, pay as much as you can each month on the card with the highest interest rate until you’ve paid it off. Then move onto the card with the next highest rate. Consider moving your balances to a card with a lower interest rate or a low introductory rate. Once you’re debt-free, invest the money you were paying in interest into a retirement account.
     
  • Learning about investing: Don’t let lack of knowledge about investing keep you from saving for retirement. Take advantage of online resources to learn about types of retirement accounts and investment vehicles, how much you should save, tax strategies and whether working with a financial professional is right for you. Try the Motley Fool website, the US Securities and Exchange Commission’s retirement center or online brokers. Many offer consumer education centers and interactive calculators.

Start with the basics
Once you've explored those initial financial issues, it's time to save for retirement. Begin with these essentials.

Create a budget. This will help you track where your money goes each month. Bankrate.com recommends spending no more than 50 percent of your take home pay on essentials, like mortgage, utilities and groceries, and up to 30 percent on discretionary items, such as dining out. You can create a budget in a spreadsheet or use an online budgeting app like Mint.

Determine how much you’ll need in retirement. An online retirement calculator, such as AARP’s, will help you estimate how much you need to save.

Take advantage of company retirement plans. Does your company offer a 401K plan? If so, contribute, even if it’s only a few dollars per paycheck. Starting at a young age really makes a difference. One Schwab study found, given a 6 percent yearly rate of return, If you invest $100 per month from ages 40 to 65, you’ll save only $69,787. However, if you start at age 18 and invest until you retire at 65, you’ll save a whopping $306,787.

Does your employer also offer matching retirement contributions? Consider this. If you earn $50,000 per year and your company matches up to 3 percent of your income, you can save $1,500 annually towards retirement and your company will also contribute $1,500 each year. Matching contributions are essentially free money!

Of course, if you can invest more than what you need to earn matching dollars, do so. Though there are some restrictions, most employees can contribute up to $18,500 per year to a 401K account ($24,500 if you’re over 50).

Open a traditional or Roth Individual Retirement Account (IRA). Even if you contribute to a 401K plan, (or if your employer doesn’t offer one) you can likely also contribute $5,500 annually to an IRA ($6,500 if you’re over 50).

Compound your savings. Compounding is earning even more money on your interest. Here’s how it works: Say you invest $10,000 at 8 percent annual compounded interest. At the end of the first year, you’ve earned $800 in interest. The second year, you‘ll earn 8 percent on $10,800. After 30 years, your $10,000 investment will grow to $100,000. The more frequently the interest compounds (perhaps every six months or every quarter), the more you will earn.

Postpone Social Security withdrawals as long as possible. You accrue Social Security benefits based on how much you earned while working. The longer you wait to start withdrawing, the more you’ll take home. For example, if your monthly benefit is $1,300, you’ll only take home $953 every month for the rest of your life if you start withdrawing at age 62 (the minimum age). However, if you don’t start withdrawing until you’re 70, you’ll take home $1681 per month. If you’re worried about how long you’ll live, consider this: a 65-year-old has a one in three chance of living until at least 90. Visit the Social Security Administration to determine your full retirement age.

Plan for medical expenses. Healthcare in retirement costs more than most people expect, even with Medicare. In fact, according to Fidelity Investments, if you are 65 in 2018, you need about $280,000 in after-tax savings to cover health-related retirement expenses. Here’s a tip for paying for medical expenses in retirement: Contribute pre-tax dollars to a company-sponsored Health Savings Account. You can withdraw accumulated savings tax free for qualified medical expenses.

Remember, even small steps can make a big difference, especially over time. Establish your emergency fund, pay off your credit cards and then start contributing something—no matter how small—to a retirement account.

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