Learning how to save for retirement is one big step to avoid retiring broke.
What is retirement? Retirement simply means that you have reached a certain age where you don’t have to work and have enough money to cover your expenses. Early retirement means that you stop working at an early age, usually before the age of 65, with enough money to cover your expenses for the rest of your life.
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Almost everyone likes the idea of early retirement and retire with enough retirement savings to live comfortably. However, very few people will be able to reach that retirement goal. And a lot of them will retire broke.
See how to allocate your assets to boost your retirement savings.
In fact, according to a 2018 survey done by GoBankingRates, nearly half of Americans have $10,000 or less in their retirement savings. Thus, it seems that either they don’t know how to save for retirement or simply that saving for retirement is not a priority.
Here are 5 reasons why you will more likely retire broke and reasons why you need to learn how to save for retirement:
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5 Reasons Why You Will Retire Broke:
1. You don’t save for retirement.
You will retire broke if you don’t save for retirement.
Some people believe that because they don’t make enough money, they shouldn’t save for retirement.
However, what they don’t realize is that the best way to save for retirement is to start early, no matter how much, and get into the habit of saving. If you’re young and start saving for retirement now, it can make a big difference 30 years from now.
Even if you don’t know how to save for retirement, one thing to keep in mind is that even a smaller amount of money can make a big difference in the long run.
One of the best money saving tips if you only have small amount of money to save is to set aside a small amount of your paycheck and put it into your savings account.
For example, if you save as little as $20 or $30 per week, you’ll have at least $1040 or even $1560 plus interest by the end of the year.
2. You don’t invest in a 401k plan or IRA account.
Another excuse people make is that their job doesn’t offer a 401k plan, so they don’t invest in an IRA account.
If your job doesn’t have a 401k plan, you can open an IRA account or Roth IRA through an investment firm such as Fidelity or Vanguard.
If you’re self employed, you can still save for retirement with a SEP or solo 401k plan, which you can also open an an investment firm.
Just the fact that your job doesn’t have a 401k plan shouldn’t be a reason for you to not have a retirement savings fund.
3. You’re prioritizing paying off debt
Paying off debt, especially high interest debt, is very important. But that shouldn’t be a reason for you not to save for retirement.
A good rule of thumb is to pay off debt and save for retirement at the same time. If you see yourself only paying off debt, that is a sign that you need to learn how to save for retirement.
4. You don’t know how much to save for retirement.
Another reason why you will retire broke is that you don’t know how much money needed to retire.
If you have no or very little in retirement savings, one of the best ways to save for retirement is to know how much money needed to retire. You have to know how much you need in order for you to plan for it.
How much should you save for retirement depends on the lifestyle you want to have during retirement.
To live comfortably in retirement, you might need $800 per week ($43,695 per year) or you might need $1,155 per week. This includes a car, clothes, health insurance, leisure activities, etc.
A retirement calculator or a 401k calculator will help you determine how much money needed to retire.
5. Your retirement savings are not enough
If you have very little money in retirement savings, you will likely retire broke and you can certainly kiss early retirement goodbye because you will need a lot to cover years of expenses.
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Figure out how much income will your retirement savings will provide you with. Use a retirement calculator or a 401k calculator to find out the level of income you can expect from savings.
Manage your spending so you can save more
A simple way to make sure you have enough in retirement savings is to track your spending. This early retirement hack will save you tons of money. Use a wealth management App like Personal Capital to see how you currently spend your money and see where you can cut back to save on specific items.
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Work with the Right Financial Advisor
You can talk to a financial advisor who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning for retirement, saving, etc). Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.