Top 10 Ways To Get Ready For Retirement

Image via WikipediaAccording to the United States Department of Labor, less than half of all Americans have figured out how much they need to save for retirement. In 2009, 13 percent of private industry workers with access to a defined contribution plan (such as a 401(k) plan) did not participate. The average American spends 20 years in retirement.

1. Save early and often.
If your saving for retirement already, don't stop. If you haven't started yet, what are you waiting for, get going. The fundamental reason to start early is that it will have time to grow. Just putting money in an account isn't enough, the miracle of compounding will transform your weekly deposit into a large amount when it comes time to retire. It only works if you start early.

2. Know the amount you need to live on in retirement.
Retirement is not cheap. Experts say that you will need 70% of your pre-retirement income to maintain the same standard of living you enjoy now.

3. Participate in your retirement plan at work.
If your place of work has a matching 401(k), make sure you contribute all you can to it. The matching is free money in your pocket. Your taxes will be lower, your company may kick in more, and automatic deductions make it easy. Over time, compound interest and tax deferrals make a big difference in the amount you will accumulate.

4. Look into your employers pension plan at work.
If your employer has a traditional pension plan, check to see if you are covered by the plan and understand how it works. Ask for an individual benefit statement to see what your benefit is worth. Before you change jobs, find out what will happen to your pension benefit. Learn what benefits you may have from a previous employer. Find out if you will be entitled to benefits from your spouse’s plan.

5. Educate yourself about basic investment knowledge.
Educate yourself about the different ways to save your money. Put your savings into different kinds of investments. Learn how diversification and why investing in different places helps your overall rate of savings. Learn about your plan’s investment options and ask questions. Financial security and knowledge go hand in hand.

6. Do not touch your retirement savings.
If you withdraw from your savings early you will lose your principle, interest, and it's compounding power. You may even incur tax penalties for an early withdrawal.

7. Put money into an Individual Retirement Plan.
You can put up to $5000 per year into an IRA, when you are 50 or older you can put even more. When you open an IRA, you have two options – a traditional IRA or a Roth IRA. The tax treatment of your contributions and withdrawals will depend on which option you select. Also, the after-tax value of your withdrawal will depend on inflation and the type of IRA you choose. IRAs can provide an easy way to save. You can set it up so that an amount is automatically deducted from your checking or savings account and deposited in the IRA.

8. Find out about your future Social Security benefits.
Social Security pays benefits that are on average equal to about 40 percent of what you earned before retirement. You should receive a Social Security Statement each year that gives you an estimate of how much your benefit will be and when you can receive it. For more information, visit the Social Security Administration’s Web site or call 1.800.772.1213.

9. Ask lots of questions.
While these tips are meant to point you in the right direction, you’ll need more information. Talk to your employer, your bank, your union, or a financial adviser. Ask questions and make sure you understand the answers.

10. Check out these web sites for more information.

AARP
American Savings Education Council
Certified Financial Planner Board of Standards
Consumer Federation of America
The Investor’s Clearinghouse
U.S. Securities and Exchange Commission