Getting financially ready for retirement is not something most people get excited about—or even want to consider. In fact, more than one-third of Americans don’t have anything saved, according to Bankrate’s Financial Security Index. And yet, it’s one of those essential, grown-up things we must do to protect our family and ourselves so we can comfortably enjoy our later years.
Whether you haven’t done a thing, are really on top of it, or are somewhere in between, we’ve got expert tips to help you create a plan to see you all the way through your years.
1. Max Out Your Retirement Contribution
Does your employer have a 401(k)? If the answer is yes and you haven’t signed up for that benefit, do it, stat, and contribute as much as you comfortably can up to the max allowance. And if it’s a matching 401(k)—lucky you! Make sure you take advantage of that because it is literally free money toward your retirement.
The exceptions to contributing as much as possible are if you have a lot of credit card debt or need liquid assets, for say, buying a home, or paying for a child’s wedding. Also look into a 529 plan to save for kids’ or grandkids’ college educations.
2. Assess Your Situation
Maybe you haven’t saved a penny for retirement. That’s ok! Start where you are. Experts recommend you begin by realistically assessing what you spend now. Look at your bank statements, and do “an exhaustive analysis of what you really spend,” says Debra Taylor, CPA, JD, and principal and founder of Taylor Financial Group in New Jersey.
Be honest with yourself. And don’t think your future self will be more frugal than you are now—a common mistake. “People are too optimistic,” says Taylor. They tend to overestimate investment returns and how long they can work, and underestimate expenses, telling themselves, “‘I won’t be buying this clothing then,” or “I won’t go out for dinners,'” etc.
Check out a free online calculator like Nerd Wallet‘s and try to get a sense of what you’ll need to retire based on expenses, income, and inflation. If you can afford a reliable financial advisor, he or she can crunch those numbers in a more custom way.
3. Pay Off Debt
There’s “good debt and bad debt,” says Taylor. Good debt would be a mortgage that’s locked in at say, 4 percent a year. It’s not doing you harm and it’s enhancing your credit history. But those credit cards with 20 percent interest? Hold off on the retirement contributions until you pay them off. Before you do anything else, “Make sure your house is in order,” says Taylor.
READ MORE: 7 TIPS FOR BETTER FINANCES
4. Save, Save, Save
Your IRA and 401K contributions are not the only places you should be socking away money. If you can swing it, you should be saving whatever you can to build up that nest egg, suggests Taylor. Some advisors say it should be around 15 percent of your monthly income.
Also consider having a “rainy day fund” that’s separate from your regular accounts. Ideally, it should have six months to a year’s worth of living expenses to help stave off anxiety in the face of the unexpected—a job loss or a stock market dip, etc.
Create these funds by setting up your bank to automatically give your savings account(s) payments—whether it’s $25 a month or $200—it will accumulate and make a difference.
5. Open an IRA
Maybe you’re thinking, “Who’s Ira?” If that’s the case, call your bank and ask about opening one. If you make under a certain amount of money, you’ll be eligible for a Roth IRA, which means your contributions are tax-deductible. Both a traditional and Roth IRA will help you save for retirement and grow your money.
There’s also a loophole to ask your banker or financial advisor about—even if you’re not eligible now for a Roth IRA, you can convert your traditional IRA to one down the road, says Taylor. You’ll pay taxes on it, but it can be worth the switch.
6. Get Insurance
If you can, seriously consider getting a life insurance plan and a long-term care policy, says Taylor. This is one way to manage the risks inherent in getting older. A long-term care policy, which Taylor thinks is essential, will insure that when or if the time comes, you’ll be covered for the care you’ll need, as long as you need it. This will also eliminate any potential family squabbles about your care—giving you the “freedom and liberty to get the best care possible,” says Taylor.
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