Don’t we all just long for the day when we can hang up our coat and retire from our job? Retirement is a luxury that’s engraved into the minds of just about every hard-working individual across the nation. We work hard so that one day we’ll have the ability to play harder, right?
Contrary to popular belief, retirement isn’t quite as simple as people make it out to be. In fact, there are a large number of individuals who either 1) must come back out of retirement because they need more money or 2) can’t retire at all because they did not plan properly. Imagine how frustrating it would be to put in decades of work and then discover that we must continue working! I don’t want that to happen to you. So here are three of the best tips for retirement that most people don’t even think about.
1. Don’t for any reason depend solely on Social Security.
Have you ever checked your pay stub and noticed that you’re always paying a certain percent towards Social Security? Most Americans probably don’t know much about the Social Security program apart from it being something just for older citizens (which actually isn’t true). But when something is taking away a little over 6% of our income, we deserve to know what it is. Let’s not get into unimportant specifics, but let’s examine the highlights of what we need to know as we prepare to retire:
• The amount of benefit we get (our monthly Social Security check) is based on a fraction of the average salary of our 35 highest-earning years. If we worked less than 35 years, then they’ll just put in $0 for each year needed to get us to 35 total years. But again, we’ll get only a fraction of what we got while working, so any additional money we need will have to come from our savings.
• The full retirement age for Social Security purposes is 67 if we were born after 1960, so asking to get benefit checks before that age results in lower monthly payments. It’s also projected that this may change again in 2020.
• The baby boomers are getting ready to retire soon, which means that there will be less money for those under the age of 40.
One of the best tips for retirement is not to depend heavily on Social Security money. If the government decides to increase the retirement age, we’ll probably retire long before then. Therefore, we’ll receive less money, possibly putting us in a bind. Instead of relying on a monthly check that might well be under $1,000, let’s ensure we have other money items under our belt.
2. Get either a Traditional IRA or a Roth IRA.
Since Social Security may not help much when we get ready to retire, what else is available besides savings accounts? Anyone who hasn’t already should start investing in an IRA (Individual Retirement Account). There are two major types: the Traditional and the Roth. Each is a savings account with its own benefits and its own drawbacks related to taxes.
We use this option to pay no tax on our wages that we invest or the interest we earn until we start taking that money out many years later (when we expect to be in a lower tax bracket). For example, instead of paying 30% tax on several thousand dollars that we earn each year, we put those untaxed wages in our IRA, earn untaxed interest on them, and years later withdraw the wages and interest and pay whatever lower tax rate we are in at that point, saving us many thousands of dollars in taxes. Upon reaching age 70 1/2, we cannot put any more money into the IRA, and we must have started taking some of the money out.
The Roth IRA is a bit different. We do pay normal tax on the wages we invest, but we pay no tax on the interest we get, and we pay no tax on any money we take out years later. There’s no age limit for putting money in, but there is a limit on how much we can put in.
With all of this in mind, the best tip for retirement is to really think about our future financial situation. Will we probably be in a lower tax bracket later in life? If so, then get a Traditional IRA if we don’t already make too much money. Will our income probably stay the same or increase? Go ahead and get a Roth; otherwise, we could find ourselves paying some pretty hefty taxes in the future.
Although that’s just a glimpse of the retirement-funds process, those are probably the best tips for retirement. Do some more research and keep current with the rules. Personally, I believe that the Roth is the better option only because there are fewer rules and we get all the money with no tax obligations once we decide to retire. On top of that, we can pass it on to other family members.
3. Get ready to start living like we don’t have the money.
There’s an article floating around about a couple whose goal was to retire before the age of 45. After some careful planning, they were able to achieve that goal and live comfortably. Their secret? They learned to live below their means. The best tip for retirement that they would give us would be to cut back on costs tremendously. That means making specific grocery lists to prevent impulsive spending, budgeting strictly, paying everything off early to eliminate interest, etc. The couple even changed their mortgage from 30 years to 15 years so as to pay less interest over time.
If we have credit cards out there, pay them quickly. Let’s be debt-free long before retirement age so we can use any money that comes to us however we like. We’re already saving our money by making contributions to our IRA, so it shouldn’t be too difficult to make sure that we only use what’s necessary.
The best tips for retirement are to save money, make some smart investments, and make sure that we stay updated on the different rules regarding these government programs. Do the research and make sure to be set once it comes time for retirement. Let’s not work more years than we have to. And when those work-free years arrive, let’s have plenty of money left to enjoy!
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