Results from a new study indicate 36 percent of American adults have nothing saved for retirement. Even more disquieting, one in seven at retirement age has zero savings, either. (Obviously those retirement planners riddling the Internet haven’t exactly helped those in need.) To top things off, historically low interest rates at the mercy of a sluggish economy might make one feel like a retirement your parents enjoy is out of the question.
A good ol’ refresher course into the finer tactics to save for retirement calls. These are a few of my personal favorite nuggets of wisdom and invaluable ways you can drift happily into cozy retirement.
Boost Your Retirement
Don’t immediately pounce on Social Security benefits when you reach 62. Procrastinating doesn’t usually pay, but in this case it does. Instead of immediately leaping onto your Social Security benefits when you reach the age of 62 (the earliest age possible), wait. Three quarters of Americans opt for benefits within two months of retiring. From 62 to 70, your Social Security benefits increase, as shown in the chart above. The payments stop increasing when you turn 70. Waiting as long as you can allows you to receive a higher monthly with each year you delay.
Use a health savings account to proactively mitigate any postretirement medical costs. Fidelity recently published a report which stated the average cost of medical expenses for the average couple after retirement is $220,000. This, for many people, would take a sizeable chunk out of an otherwise livable retirement account. HSAs, or health savings accounts, can act as vehicles to propel your retirement savings.
It’s certainly a wiser alternative than being covered by a high-deductible healthcare plan, and its tax benefits allow your money to compound yearly. While you’re in the throes of a carefully planned, thriftily executed retirement, it’ll help tremendously to have your HSA—which has accumulated growth regularly for years—cover your out-of-pocket expenses and visits to the doctor’s office. Moreover, when you need the money you can take it out tax-free.
Take advantage of the magic of compounding. Odds are your parents acquainted you to the idea of interest and investing and 401(k)s at a young age. Or maybe they didn’t. With financial illiteracy reaching an all-time high, this is a topic that bears repeating. Compounding happens within your IRAs, RRSPs and other tax-deferred savings plans over time. It is perhaps the most important tool for building up a safe and reliable nest egg.
Say you set aside $10,000 at age 30; by 40, at a 7 percent interest rate, you will have nearly $20,000. Every year after the set-aside your savings will continue to increase. Like planting a seed, your money tree will grow exponentially. So, using compounding interest as a means to build a fund will work wonders as you inch closer to retirement.
Downsize until you’re rightsized. You moved into the beautiful neighborhood with the excellent school ratings and slightly higher, yet completely worth it, living costs. Now that your children have grown up and you’re reaching retirement, it’s time to reconsider you’re living situation—for the sake of the nest egg, of course.
It is repeated again and again that downsizing is great for a variety of reasons; for example, you can boost your retirement savings by moving out of that four-bedroom house and into a lower-cost, tax-relaxed community. This in turn will slash utility bills, the obligatory tax burden, and your entire cost of living. Forbes puts out a list of best retirement cities almost every year. When you get closer to retirement, the clarity of understanding what you truly need becomes crystal.
And do you really need that 4,000-square-foot home?