People should enjoy the fruits of their labor. However, there are obstacles that may get in the way of having a comfortable life after retirement. So, they should consider planning their financial life early in their career to overcome these setbacks.
Though it may be tough for some employees to save money for their retirement, it is their best bet to maintain their lifestyle after retiring from work. The safest figure to contribute is at least 15% of their salary all through their career and this includes an employer’s match. On the average, a majority of individuals only contribute 6% to 8%, which is far below this rate.
They should be more focused on saving money to have a more comfortable life after retirement. As advised by financial planners, they should contribute 15% for at least 3 months and thereafter, reduce it to 10% to 12% whenever needed.
Starting to Save Too Late
Every time employees fail to contribute to their retirement savings, they reduce their chances of boosting their accounts and maintaining the momentum. When they save early during their career, they will experience less difficulty in case they take a break later on, to pay for college. This is much better than just starting to save only when they reach mid-life., like for example when they are 55. However, if they were only able to start this late, but their salary per annum is quite high, they can contribute more for the following ten years. They will be able to catch up and save a lot by the time they reach 65.
Not Investing In Stocks
There are people who are conservative when it comes to investments and they miss the opportunity to invest in stocks. When the market comes back up, they are not able to join in the rally. However, they can get back in by regularly investing fixed amounts in stock mutual funds. This way, they are able to purchase more shares that cost lower and less shares that cost higher.
A majority of financial planners advise people to invest 80% in stocks when they are in their 20s and 50% upon approaching retirement. Also, during the latter years, their portfolio can include 50% of set income investments.
Losing A Job
When people lose their job, they lose a means of income and therefore, miss the opportunity to contribute to their retirement savings. Even worse, they may withdraw from these for their daily expenses. To avoid this scenario, it is best for them to have an emergency fund that can cover from 6 months to 1 year of expenses. However, this can be easier said than done. To prevent further problems, it is best to stick to their health insurance. They can get coverage from their spouse but if this is not possible, they should try to extend employer-based coverage by means of COBRA, up to 18 months.
Losing a Spouse
People only realize the importance of a life insurance policy, when a spouse dies. Usually, married couples share their joint earnings for their daily expenses and now, only one is left to support the family. With a pension, they can choose the single-life benefit or the standard joint (survivor’s) benefit. The first one is higher but ends when a person dies, and the latter pays less when the remaining spouse is still alive but continues to pay for the rest of the spouse’s life.
If they are the higher earners (usually, the men), delaying Social Security, as further as possible, can help their spouse. After the age of 62, every year that they delay can gain a benefit of 6.5% to 8% up to the age of 70. Moreover, when the higher earner dies first, the spouse can be eligible for the survivor’s benefit until the full amount he was entitled. This depends on the age the remaining spouse has filed.
Saving money really pays off, especially when this is done early in life. This way, they can enjoy what they worked hard for long after their retirement years. They will also be prepared in case the inevitable strikes.