(MP) Countless people are living paycheck to paycheck, in-fact 40% of Americans near retirement age have zero retirement income, according to Federal Reserve data. And among those who may have savings, the median balance is just $100,000. That may sound like a lot, but experts recommend 10 to 12 times your peak annual earnings — therefore if your household makes $100,000 you better have $1 million to $1.2 million saved up to sustain your lifestyle! Chances are high, you’re not on track to hit this target. So make 2016 the year you begin catching up by following Money Pacers.
10 Strategies for Retirement Income
1. Spend less than you earn
One of my biggest strategies for building retirement income starts with you actually saving money in the bank. It’s a Money Pacers principle I absolutely recommend all our subscribers live by. I recommend you spend only 70 percent of the money you earn and put away the remaining 30 percent. If you have zero savings right now, start putting away 10 percent of your income into an emergency fund – savings account. Then put the other 20 percent into a retirement fund. If you can’t live on 70 percent of your income you may want to read Common Ways Americans Waste Money.
2. Begin saving early
No matter how little you save, every cent makes a difference in building retirement savings. Develop realistic savings goals and save regularly by placing aside a set amount at a set time. For example, if you save $14 per week (two dollars a day) in an account that earns 1% interest, you will accrue more than
$12,400 at the end of 17 years. Now, consider the power of compounding interest: if you start saving at 20 years old and manage to put away $100 a month into a retirement fund. Assuming you average 8 percent returns, by age 65, you’ll save exactly – $463,806. Even better, over that 45-year period, you’ll only have invested $54,000 of your own money to get nearly half-a-million in return.If you wait until you’re 40 to start saving $100 a month, with the same rate of return, you’ll put in $30,000 of your money and get $87,727 in return by age 65. But wouldn’t you rather have half a million?
3. Make up for lost time
If you contribute to an IRA or a Roth IRA, you’ll be able to contribute up to $5,500 yearly. But if you’re over 50, you may make an additional “catch up” contribution of $1,000 for a total of $6,500.The boundaries on 401k contributions are even better. The 401k contribution limit is $17,500 per year, and if you’re over 50 you can add another $5,500 to that as a catch up contribution. So if you’re over 50, try to hit those targets whenever possible.
4. Don’t walk away from free money
If your employer offers a 401(k) match, be sure you are taking full advantage of it. Many employers will chip in to your retirement fund based upon what you yourself are saving — for example, if you save 6% they will chuck in 3% as well. So by saving for retirement, which you certainly ought to do anyway, you’re effectively giving yourself a raise! Check with your hr department manager and make sure you’re not leaving any free money on the table in 2016.
5. Minimize your taxes
The rich stay rich, somewhat, because they’re savvy enough not to let Uncle Sam take too much of their money. Retirement plans, such as pensions, 401(k) and 403(b) plans, and Individual Retirement Accounts (IRAs), are legitimate tax shelters.
Investing in real estate is a common tax shelter. Besides the deductions it allows you to make — mortgage loan interest, mortgage insurance and property taxes — a real estate investment can help you grow wealth over time.
Other tax shelters:
real estate investmentspension plans401(k) and 403(b) plansIRAssetting up your own businessmunicipal bondsemployer-sponsored health coverageemployer-sponsored <>life insuranceemployer-funded educationSee an financial adviser for the best options for your particular situation.
6. Take a little risk
You might take the safe approach and put all your money in bonds but with that approach, you’re unlikely to retire a millionaire. The stock market is subject to short-term fluctuations, along with bear markets. But over the long term, the stock market has historically performed well (GetSmarteraboutMoney.ca). Make use of the money in your emergency fund or other savings fund and invest for the long haul.
7. Stay informed about your investments
You should in reality only need to make major changes to your portfolio once or twice per year. You’ll may want to rebalance your portfolios to stay in line with the asset allocation you’ve chosen for yourself. As a starting point, check to make sure that the target you have set for your balance of stocks and bonds matches your goals, risk tolerance, and time horizon.
While keeping the overall diversification of your portfolio in mind, you can consider making adjustments to individual securities. The answer to the question of what to sell and also where to reinvest will be different for each investor. Nevertheless, the following principles will help you determine where to make adjustments that fit your personal goals.
Get started with any individual stocks you hold. Check to determine if companies have performed up to your expectations, and consider whether your outlook for them remains positive. Also pay attention to the stock’s valuation, to make sure it is still reasonable.
8. Break away from the herd
The worst time to sell stocks in when the stock market in bottoming out. Back in 2009 when the market crashed, lots of people freaked out and sold their investments, while Warren Buffett, myself and other wise investors were buying them. Then the market started to rebound and we’ve consistently saw 2% to 4% increases on our low brought stocks. The people who are going to have great retirement income rich are those who snatch up stocks at bargain-basement prices and watch their value climb by double digits in the following years. What’s the lesson here? Don’t follow the herd, these are your frighten deer who jump and run immediately in the face of stock market danger.
9. Work longer
While many experts will tell you, if you haven’t saved for retirement, wait to file for Social Security.
If your benefits at full retirement age are $1,000 a month, you’ll see that figure fall to $750 if you start collecting at 62 and leap to $1,320 if you hold off till age 70, according to Social Security.
That may not be the most sound advice, depending on your particular circumstances. Today, people are working longer because they haven’t saved for retirement and Social Security alone will have you living below the poverty line. But working longer may not be the best advice according to some experts.
10. Maximize your earning and income potential
While you wouldn’t want to define your character by the amount of cash you make, you do need to possess the mind-set that whatever you can earn, you are worth. If you think of yourself as a $25,000 a year employee, $100,000 is quite a mind leap.
Consequently, getting more money is not just okay; it’s fundamental to the plans you have for your life. Requesting a higher salary when you change jobs is expected. Requesting an increase in pay from your current employer is your right. Choosing a career that will pay a higher salary and thus, a higher lifetime income, is exactly the way to go.
How’s your retirement saving going? Share with us in comments or on our Facebook page.
Sign up for “Follow the Money” newsletter
Like this article? Sign up for our newsletter and we’ll send you a regular digest of our newest stories, full of money saving tips and advice, free!