When you think of retirement, what comes to mind? Here are four things to think about as you plan for your retirement:
1. It's a great time for a fresh start. Think 65 is too old to start a new career, take up new hobbies or go back to school? Think again. After all, retirement these days may be 20 years or more. Plan to spend your time doing the things you've always wanted to, but never had time for.
2. Your employer's 401(k) plan alone might not be enough. Don't confuse your 401(k) with a pension. Your 401(k) does a lot of good by automating your savings, deferring your taxes until retirement (when you could be in a lower tax bracket) and giving your employers' the chance to match some of your contributions if they choose to. But you can only benefit from it if it's well-funded.
3. Social Security won't take care of you. Chances are good that your Social Security benefits won't be enough to cover your living expenses. To get an idea of how much your monthly benefit might be, take a look at your Personal Earnings & Benefits Estimate Statement, which the Social Security Administration mails out each year. (Your monthly benefit will change over time, so check your statement each year.)
4. Stretch your income. If you're willing to relocate to a city with a lower cost of living, your expenses could go down. Downsizing to a smaller home can add thousands to your potential income. Many retirees take on part-time jobs they love. Or how about putting your skills to use by tutoring or offering services to your community.
1. Your payments will be bigger if you wait until your full retirement age. You can start taking Social Security payments as soon as you turn 62, but your benefits will be reduced 20 to 30 percent. That's a big chunk, especially if you expect to spend many years in retirement. You might consider working a bit longer or relying on your retirement savings to help cover your living expenses until you can receive full benefits.
2. You can work while getting Social Security. As long as you're 62, you have the option to take Social Security. If you earn more than $13,560 a year between age 62 and your full retirement age, your benefit payments will be temporarily lowered, based on how much you earn. The good news is that you don't actually lose out on those benefits. Instead, your payment amount is recalculated so that you receive more money later on.
3. Your payments won't start automatically. The two rules above mean it makes the most sense for you to tell the Social Security Administration when you're ready to start receiving monthly benefits. You can do that over the phone (1-800-772-1213), in person or through the Social Security online application
4. Your benefits could be taxed. Only a third of Social Security beneficiaries end up paying taxes on their benefits. It all depends on the earnings listed on your income tax return. If you file with more than $25,000 as an individual (or $32,000 jointly), you'll have to pay federal income taxes on your benefits. The rules for state income taxes vary from state to state.
5. Your payments can help your family, too. Let's say your monthly benefits turn out to be three times as much as your spouse's. (It's a common scenario, especially in families where one spouse paused their career to stay home with the kids.) If she waits until her full retirement age to start getting benefits, her payments will be raised so they equal half of yours. After you die, your spouse will get either your monthly benefit check or hers - whichever is more.
Two very good reasons to save for retirement, no matter what:
1. Employer matching. If your employer matches a certain percentage of your 401(k) contributions, it makes good sense to contribute enough to get the full match. After all, why pass up free money?
2. Time is on your side. The sooner you start saving for retirement, the more your money can grow.
If you're suffocating under heavy interest or the minimum payments suck up too much of your income, it's probably best to pay off at least part of the debt before you focus on saving for retirement.
If you decide to save for retirement while paying off debts, here's a few ways you can do it:
1. Do what you can to lower your interest rates by refinancing or, in the case of credit cards, simply asking for a lower rate.
2. Figure out how much money this frees up each month and begin contributing that amount to your 401(k) or IRA.
3. Do what you can to free up other small amounts of money, which you can use to beef up your savings, pay off the debt faster or treat yourself for making great headway toward your long-term goals.
1. You're at the height of your career. Experience, perspective, maturity and seniority are all on your side. Many sixty-somethings find they aren't quite ready to give up all that they've achieved in the working world.
2. The world is your oyster. Now's the time to go for your dream job. You're less likely to need the highest salary you can get, so this could be the perfect time to indulge your creative side, jump into the nonprofit world, or simply trade your high-stress job for a more enjoyable one.
3. Even part-time work can help pay bills. When you're raising kids and paying a mortgage, it might seem like you could never live on less than two full salaries. By the time you're ready to retire, your expenses could be much lower.
4. Your transition into retirement will be smoother. Retirement sounds like a wonderland of free time, quiet, and all-around freedom. And for most retirees it is - at first. After the first year or two, though, some people find themselves feeling a bit bored or lost.
5. It could help keep you healthy. Keeping your mind and body active are essential to your health and wellness. As long as your job isn't too stressful, it could actually help keep you going strong.