Your dream retirement may involve traveling to interesting locales, spending time on the golf course, visiting family, or luxuriating at beaches both far away and close to home. But standing between you and those visions is the question of how to pay for them. And given that according to an AARP survey, almost half of Americans fear that they'll run out of money during retirement, unlimited time at the shore may be only a pipe dream for many.
There are things you can do, though, that will help you have enough secure income in your senior years to allow you to do the things you want to do. The four steps below will put you on a path toward feeling the sand beneath your toes whenever you choose after you retire.
1. Save consistently and begin early
You've probably heard this advice a few times before: Start socking money away for your retirement as early as you can. This way, you can take advantage of the element of time, which is the key to unlocking the power of compound growth. Through compounding, you're not just accruing gains on your principal, but also making gains on your previous gains. So the benefits intensify the longer compounding has to work.
Even if you're in middle age, though, don't give up. It's not too late to get moving on saving and investing for the future. You may need to cut back on some expenses in order to set aside enough to compensate for your late start, but if you're envisioning lounging by the sea without a care in the world, it's important to save every dollar you can.
2. Delay filing for Social Security benefits for as long as possible
One way to guarantee you'll have more income flowing your way each month in retirement is by postponing the day you start taking Social Security benefits for as long as you can. You can begin taking those payments as early as age 62, but if you want fatter monthly checks, it's better to wait until your full retirement age (FRA), which will be somewhere between 66 and 67, depending on the year in which you were born. Or better yet, wait until you turn 70. That guarantees you the highest possible monthly check available to you based on your work history.
For each year you delay claiming past your FRA, your benefit will rise by 8% -- a rate of return even the stock market can't guarantee. And that enhanced benefit will be distributed to you every month for the rest of your life.
3. Pay off debt
Few things will curtail your ability to windsurf off Australia's Whitsunday Islands more effectively than having to pay off debt month after month. So it's important to make a plan to reach the day you retire debt-free -- and that includes paying off your mortgage.
Once you're committed to getting out from under your debts, there are several tactics you can employ to improve your odds of making it happen. Below are four, all of which have one common theme -- they result in a larger share of your payments going toward paying down the principal:
- Negotiate with your lenders for lower credit card interest rates.
- Pay off high-interest debt first.
- Consolidate your debt into one monthly payment at a lower interest rate.
- Look for balance transfer offers that will reduce your interest outlays.
4. Create a financial plan
There's nothing like having a financial plan all mapped out to help a person feel confident that they're on track to enjoy retirement without worry. If you know how much money you have coming in and going out every month, it's easier to budget and set aside funds for your beachfront condo.
If you don't have the expertise to create one yourself, visit a financial planner. Make sure you find one who's a fiduciary, because they're obligated to put your interests above theirs. By so doing, you'll avoid the sales pitches for questionable (high-commission) investments such as annuities and whole life insurance policies, or being pushed toward money management services you don't need.
There's no reason you can't make all your retirement dreams come true, and do so free from the worry that you'll run out of money before you run out of time. Your senior years should be filled with long walks on the beach, orange-yellow sunsets, and plenty of pina coladas. Taking the above steps will help improve the odds that when you retire, you'll truly be able to enjoy it and leave worry behind -- along with whatever job you're retiring from.
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