Basic Retirement Questions You Need To Know

shutterstock_24497539Retirement life may be the same for everyone. It can be comfortable and stress-free for those who have prepared for it. On the other hand, retirement life can be hard for those who forgot to build a retirement fund during their working years. Preparation is key to a comfortable retirement life. It also helps to know the basic questions that all people need to ask concerning retirement.

How much will I need for retirement?

That will depend on the lifestyle you plan to follow upon retiring. Most people will simply just follow the type of lifestyle they have grown accustomed to for the longest time. Others may plan to spend a more luxurious retirement.

If you simply expect a comfortable retirement, then the common rule of thumb is that you need to have a yearly retirement budget that is equivalent to 70 percent of your pre-retirement annual salary. But there are other factors such as your health condition and debt situation to consider as well. The 70 percent rule applies if you already have paid off your mortgage and other debts prior to retiring and if you are in good health. You might need to consider saving up more if you have an existing health condition that you need to treat during your retirement.

How can I save for retirement?

The simplest way is to separate a certain portion of money that you save on your own for your retirement fund. If you find it hard to do this on your own, there are other ways available. While you are working, the best way is enrolling automatic deductions on your paycheck to place on your 401(k) or IRA account. This way you safeguard a portion of your salary to a retirement account. You can take advantage of the savings plan by contributing the maximum allowable amount so that you get the maximum benefits by the time you retire.

When do I save for retirement?

The easy answer to this is, “Now”. If you have not started saving up for your retirement in the past, then you need to start immediately. Do not wait until you think you are old enough to think about retirement before you start saving. This can be a grave mistake. If you start in your 30’s or 40’s to save up for retirement, then you might find it more difficult to reach your expected retirement fund goals. The earlier you start, the easier it will be to accumulate a retirement fund suitable for the type of lifestyle you expect to follow when you retire. As the saying goes, “The best time to plant a tree was five years ago. The next best time is now.” This also applies to saving up for retirement.

Where do I save for my retirement?

The best options that you have available are saving your money on tax-deferred retirement accounts. Examples are traditional IRA’s which tax your income only after you withdraw it from your retirement account. The advantage is that you get to make full use of your contributions according to the amount you put in. The money that may otherwise go to taxes begins earning for your retirement account until you retire.

Tax treatment may also work the other way. You might prefer a taxable retirement account if you expect your earnings to remain steady for a long time or if you belong to a lower tax bracket. This will help you take advantage of the lower taxes. But if you belong to a higher tax bracket, a tax-deferred account may be more preferable.

 

Posted by Ardent Editor on Nov 14 2013 in Retirement 101 Tags: , ,

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