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Retirement is a big deal for many people. You work and save your entire adult life to slow down and enjoy those golden years.
Unfortunately, many people fall behind and struggle to have enough money saved up by the time they want to retire. According to a recent AARP survey, 20% of Americans over the age of 50 have no retirement savings, and over half worry they won’t have enough money to last through retirement.
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GOBankingRates recently spoke with Frank H., and while he was never part of the 20% with no retirement savings, he said he made some mistakes along the way. During our conversation, he told GOBankingRates three things he would do differently if he had to do it all over.
Money expert Dave Ramsey also shared three things you must consider when deciding if you’re ready to retire.
1. Have a Plan
“When I first started working after college, 401(k) plans didn’t exist,” said Frank. “They weren’t developed until the late 1970s, and I didn’t have access to them until the 1980s. Instead, I was putting money away into a personal savings account. I hoped it would supplement what I would receive from Social Security.”
Frank continued, “The problem was that I didn’t really have a plan. I didn’t know how much I was going to need; I was just blindly putting money away.
“Things are a lot different today. I talk to my son and he has a retirement number. He knows how much he wants to have saved by the time he retires, and based on historical returns, he knows how much he should be saving each month.”
Having a plan is one of the most important things you can do for your retirement. Understanding how much money you’ll need each month to afford your retirement lifestyle can help you figure out how much you’ll need in your retirement account before you can retire.
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2. Take Advantage of Roth Accounts
“By the time Roth accounts were created, I had been working and saving for [over] 20 years,” said Frank. “However, I wish I had understood their power much sooner.”
Frank continued, “Most of my retirement savings (other than Social Security) is in either a traditional 401(k) or IRA. When I make distributions, a significant amount is taken away for taxes. This was something that I didn’t take into consideration when Roth accounts became available.”
Traditional retirement accounts are a great way to save for retirement, but they require some additional planning. When you make contributions, it helps lower your taxable income in the year the contributions are made. However, you must then pay taxes on the earnings when they’re withdrawn.
Roth accounts help change the tax liability in retirement. You don’t receive any kind of tax benefit today when you contribute to a Roth account, but you can withdraw the gains in retirement, tax-free.
3. Worked Longer
“When I retired, I was ready to call it quits,” said Frank. “I had been working for the past 40 years, and I was tired.
“I was old enough to start collecting Social Security, but I didn’t consider how collecting before my full retirement age would affect how much I could receive. While it’s not making me pinch pennies, that extra income every month would be nice.”
Workers can start collecting their Social Security benefits when they reach 62. However, their benefit amount will be reduced. Someone who starts collecting Social Security at 62 instead of waiting until their full retirement age of 67 would have their benefit amount reduced by approximately 30%.
Plus, you also need to consider what you’re giving up if you don’t wait to collect until you reach 70. By holding off three more years past your full retirement age, you could collect an additional 24%.
Understanding the math before you retire can help you make the best financial decision.
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This article originally appeared on GOBankingRates.com: I’m a Retired Boomer: 3 Things I Wish I Had Done Differently To Better Prepare for Retirement Longevity
