Calculators have come a long way in the last decade. Online versions are free, and (if you like to see what you can do with your money) kind of fun. Here’s how to make managing your money a hobby you enjoy using the powerful new tools online, such as a retirement calculator.
Step-by-Step Instructions
First, gather your financial information: savings amounts, paychecks, current savings, and your monthly household profit and loss statement.
Now, start plugging in numbers. Run different scenarios that include adjusting retirement age, income, and expenses. Each scenario will have a pro and a con. For example, if you want to save more money or have more money in retirement, you’ll have to make small sacrifices and changes in your budget now. However, you can adjust to something you can be happy with.
With your budgeting plan in hand, you can set up your contributions so that they come out automatically. Check monthly on cost-of-living increases, your current retirement projection, and what more you can do to get the results you want. Interest rates are always changing, so check back regularly and see if you need to make adjustments. And as you age and expenses lessen, beef up your contributions.
The Psychology of Saving
Savings grow exponentially, so ensure you tell yourself that the little contributions aggregate over time. Leave them alone except for an emergency, such as a loss of income or natural disaster. If you are overprotective about your retirement fund, it will be protective of you when you need it.
Ideally, your retirement curve should look like this: Steady growth and steady spending. Of course, everyone’s life is different, but if you start with the ideal in mind, you will be more prepared for retirement.
Don’t forget to count your Social Security checks. Delaying your Social Security benefits can increase the amount you receive in each monthly check.
Here’s why: You can start claiming Social Security as early as age 62, but if you do, your monthly benefit amount will be reduced. If you wait until your full retirement age (around 66 to 67, depending on your birth year), you’ll get 100% of your calculated benefit. However, if you delay even further—up to age 70—your benefit increases by about 8% per year.
In other words, the longer you wait to start taking Social Security (up to age 70), the bigger your checks will be. So if you’re able to keep working and don’t need the income right away, it’s often financially beneficial to wait.
Additional investments like real estate will also add to your portfolio. The home you own will increase in value, so downsizing at the right time will add to your retirement account. Some people downsize and pay cash, while others take the equity and invest it into something secure like an IRA or a high-interest savings account. Create milestones and apply them to your retirement calculator and see the difference it can make for your financial situation. Even at age 65, investing in an IRA can still be a valuable part of a retirement strategy. Here’s a breakdown of the key reasons why:
Potential Tax Benefits
Traditional IRA
If you’re still working and meet certain criteria, you may be able to deduct contributions, reducing your current taxable income. This can be especially helpful if you anticipate being in a lower tax bracket in the future. The money grows tax-deferred, meaning you won’t pay taxes on it until you withdraw it in retirement.
Roth IRA
While contributions aren’t tax-deductible, qualified withdrawals in retirement are tax-free. This can provide valuable tax diversification and help manage your tax liability in later years.
Roth IRAs are not subject to Required Minimum Distributions (RMDs) during the original owner’s lifetime, offering more flexibility.
Other Important Considerations:
Extending Your Savings
If you’re still working, contributing to an IRA can help you bolster your retirement savings.
Managing Required Minimum Distributions (RMDs)
While traditional IRAs have RMDs, Roth IRAs do not. Converting traditional IRA funds to a Roth IRA can be a strategy to manage or eliminate RMDs.
Leaving a Legacy
Roth IRAs can be a valuable tool for passing wealth to your heirs, as beneficiaries can inherit the accounts tax-free.
Conclusion
Make planning for your retirement fun. Use the available calculators and see how to best meet your goals and make the most of your financial assets. If you need help, don’t hesitate to contact Tim from FedUp.
Here is a handy calculator to try. Go ahead, have fun! You can also fill out my 30-Day Spending Awareness form to understand where your money is currently going.