Planning for retirement is something that many people put off until the very last moment. However, experts like Robert Nico Martinelli say you should start considering your retirement options long before your first day of retirement. For example, you should consider how much money you plan to spend during retirement and then do some research on how much money you will need to save in order to meet that goal.
Here are some key issues your should know when planning for retirement.
You should start saving money long before you retire. If your employer offers a 401k plan, then it is important that you take advantage of that plan as much as possible. The average 401k account earns about 10% interest per year and grows to $300,000 over the course of 30 years. This is more than enough to fund a comfortable retirement.
During your working years, you should aim to put away about 15% of your income into savings and investments for retirement purposes. The more aggressively you invest, the earlier you will be able to retire; however, it will also require you to save up more money in order to live on less interest per year. Some experts recommend investing as much as 50% of your income for this purpose.
The tax laws are constantly changing, and each person’s situation is unique; thus, it is difficult to predict what level of taxation will apply during your retirement years. However, there are some general that can help you determine how much money you will need to save for retirement.
For example, if you have a home and depending on how long it takes your spouse to die after you die, then up to three quarters of a million dollars can be exempt from taxation by allowing your spouse to pass the estate tax-free to their heirs. In addition, any money in mutual funds or other investments is not taxable as long as those investments are kept in an IRA; however, once you take this money out of the IRA, it will become subject to taxes at your ordinary income rate.
The current average monthly Social Security benefit is $1,230 per month, which adds up to about $15,000 per year. If you start collecting Social Security at age 62, then your benefit will be reduced by up to 30%; however, the longer you wait to claim Social Security (until age 70), the larger your benefit can become.
Paying for Medical Bills
The average medical bill during retirement is roughly $4,000 per month. If you are married and both of you are retired, then this can add up to $24,000 per year or $720,000 over the course of 20 years. Some people purchase long term care insurance in order to help cover these costs; however, depending on where you live and how much money you have available to pay for medical bills, there may still be some expenses that exceed what traditional health insurance covers.
No one has a crystal ball and can accurately predict what the economy and tax laws will be like in the future; however, it is safe to say that less than 10% of retirees these days are able to live on Social Security alone. As such, it is important that you start planning for retirement as early as possible.