Most Americans have less savings than what’s recommended by the finance gurus of the world. For example, according to Synchrony Bank, people in their 60s should have eight to ten times the amount of their annual salary saved up for retirement. However, according to the Transamerica Center for Retirement Studies, the median retirement savings for Americans in their 60s is $172,000.
If people in their 60s make, on average, $46,984 a year, then the median retirement savings should be around $422,856. There are several ways to be proactive in saving for retirement. Follow these six personal finance tips for retirement to save as much as possible for your retirement.
1. Delay your Social Security benefits
The average retirement age is around 62 years old. This age is also the earliest age in which you can start collecting Social Security retirement benefits. However, the earlier you start your benefits, the lower your monthly check will be. If you start your retirement benefits at age 62, you will only receive about 70% of your earned benefits.
Each year you wait past age 62, up until age 70, your benefit amount increases. If you wait until your full retirement age to start receiving your retirement benefits, you will receive 100% of your earned benefits. However, if you wait until 70, you will receive around 130% of your earned benefits. As you can see, delaying your Social Security benefits has its perks.
2. Find an alternative source of income
Depending on when you retire, you may want an alternative source of income for the time between retirement and Social Security benefits. For example, if you retire at age 62 and delay Social Security benefits until 70, you’ll need a plan for income to pay for health insurance, living expenses, and other necessary costs.
It’s preferable to have an alternative source of income for this period to ensure you don’t run through your retirement savings too soon. A few ways you could earn an alternative income is getting a part-time job, walking your neighborhood dogs, teaching online, or starting an Etsy store.
3. Shop for savings
Down-sizing has become a popular trend among retirees. Many seniors choose to sell their homes and move into an apartment for several reasons, including cost-effectiveness. While down-sizing has a ton of savings potential, it may not be the right move for everybody.
However, there are plenty of other avenues you can take when shopping for savings. For example, you could shop different carriers for all of your insurance needs to find a lower premium. You could also try negotiating your other bills such as your phone and internet bill.
4. Keep up with your 401K contributions
As of 2020, the 401K contribution limit is $19,500. However, if you’re 50 or older, you may be able to contribute more. This extra contribution is also called catch-up contributions. As of 2020, the catch-up contribution limit is $6,500. Therefore, if you’re 50 or older, your annual contribution limit for 2020 is $26,000.
Could you imagine if you contributed $26,000 into your 401K each year? Let’s say you’re 55 and plan to retire at 65. In those ten years alone, you’d have $260,000 saved up in your 401K – not to mention your employer’s contributions. Also, the more you contribute, the less taxable income you will have at the end of the fiscal year.
5. Consider other savings vehicles
While a 401K can do wonders for your retirement nest egg, you should also consider other savings vehicles to maximize your savings potential. You should speak to a licensed financial expert to learn exactly which savings vehicles are right for you, but here is a couple you can consider.
- Individual Retirement Account (IRA)
- Roth IRA
- Health Savings Account (HSA)
Each savings vehicle has a different set of rules and limitations. So, be sure to compare each of them thoroughly. You may find more than one that can help you with your retirement savings.
6. Plan for Medicare costs
One of the biggest surprises of retirement is that Medicare isn’t free. All too often, retirees say how they never knew they had to pay for Medicare in retirement. The truth is, while most people earn premium-free Part A by paying Medicare taxes, they still have a Part B premium that they will always have to pay.
The Medicare Part B premium has a base standard that is set each year by Medicare. However, if your previous income was above a certain level, your premium can be increased. For example, if your 2018 income was above $87,000 as an individual filer, your 2020 Part B premium will be higher than the base premium of $144.60. It’s important you plan for this possibility and other Medicare costs such as a Part D premium, Medicare plan premium, copays, and coinsurance.
In the end, it’s best to talk to someone who eat, sleeps, and breathes, retirement planning. Having an expert to guide you through all of your financial options could be the one thing that leads you to a bigger nest egg.