Generally people working in USA will get a bi-monthly or weekly salary instead of monthly one. So it is necessary for them to start planning and saving for an early retirement. Even though the citizens of USA has social security benefits, it will not be enough for them to survive after retirement. It is good to start saving at least 5 to 10 years before your retirement.
1. Make a retirement savings plan for yourself
Before starting saving, first estimate the approximate amount you need every month to live. If you own a house, rent expenses will not be there. Take into account all the expenses like car insurance, medical insurance, utility expenses like electricity, water, gas, groceries etc and find out the approximate amount that is needed to survive. Subtract the social security benefits from this and plan your savings for the remaining amount.
2. Stick with a fixed monthly budget
You have to stick to a monthly budget in order to save for your retirement. Reduce the amount spent on entertainment a little. Think of all possible options which will reduce your expenses. For eg, car pooling will save some spent on gas for car. Relocating to a less expensive apartment in your area can save some money. Make use of the coupons and deals from magazines or newspapers while shopping.
3. Generate additional income through Investments
Put a portion of your money in investment plans like mutual funds, certificate of deposits, stocks etc will help you to grow your money. You can consult a private financial advisor or someone in your bank to get guidance on the various investment options available.
4. Open Individual Retirement Account (IRA)
You can open an Individual Retirement Account (IRA) for yourself . There are two types of IRA accounts namely traditional IRA and Roth IRA. You can choose either one depending on your needs. You can put up to $5000 per year in an IRA account. The limitation increases when your grow older. IRA also provides tax benefits.
5. Employer’s Pension Plan
If you are working in the same company for long time and you don’t have plans to switch jobs, check out if you are eligible for your employer’s pension plan. Find out how much money you have to contribute, percentage of money contributed by the employer, benefits of the scheme etc. Check out if it covers your spouse also. If you are changing jobs frequently this option may not work well for you.
6. Retirement Savings Plan
Check out if your employer offers a retirement savings plan like 401 (k) or 403 (b) plan which will reduce your tax a lot. As the deductions are automatic you don’t have to worry about transferring money to the savings. Get information on how much you have to contribute every month to get the full benefits and how long you have to stay in your company to get the amount back. Make full use of your employer’s savings plan for good benefits.
7.Clear your debts periodically
Try to close your credit card balances and mortgages as soon as possible so that you don’t lose money towards the interest. Make sure that you will have zero debt when you start your life after retirement so that you will live peacefully. Don’t put yourself in too much of debt at the same time and think twice before you borrow money.
8. Delay the social security payment
Usually you will get about 40% of your earnings before retirement as social security benefit. To get a clear estimate, check out the Retirement Estimator of the government website. It is said that if you delay your receiving of the social security benefit every year, you can get more money when you cross 70 years of age.
9. Automate your savings
Whatever savings plan you are deciding other than your employer, set it up in such a way that the money is transferred automatically from your savings or checking account to the savings plan so that it will prevent you from spending the money.
10. Make use of the extra funds
Whenever you get a rise in your salary or an incentive for the work or any other extra money, make it a habit to spend at least 50% of the amount towards your retirement savings plan. Don’t spend the extra funds fully and regret later.
There are many retirement planning tools and schemes available on the internet which will help you to estimate the amount needed and how to save it. Some of the them are given below.