10 Ways to Prepare for Retirement

bucketFinancial security in retirement doesn’t just happen. It takes planning and commitment and, yes, money.

Facts

  • Fewer than half of us have calculated how much we need to save for retirement.
  • 30 percent of private industry workers with access to a retirement plan do not participate
  • On average we spend 15 years in retirement

1. Start saving, keep saving, and stick to your goals

If you are already saving, whether for retirement or another goal, keep going! You know that saving is a rewarding habit. If you’re not saving, it’s time to get started. Start small if you have to and try to increase the amount you save each month. The sooner you start saving, the more time your money has to grow. Make saving for retirement a priority. Devise a plan, stick to it, and set goals. Remember, it’s never too early or too late to start saving.

2. Know your retirement needs

Retirement is expensive. You will need about 75 percent of your pre-retirement income lower earners, 90 percent or more – to maintain your standard of living when you stop working. Take charge of your financial future. The key to a secure retirement is to plan ahead.

3. Contribute to your employer’s retirement savings plan

appleIf your employer offers a retirement savings plan, sign up and contribute all you can. Your taxes will be lower, your company may kick in more, and automatic deductions make it easy. Over time, compound interest and tax deferrals make a big difference in the amount you will accumulate. Find out about your plan. For example, how much would you need to contribute to get the full employer contribution and how long would you need to stay in the plan to get that money.

4. Learn about your employer’s pension plan

If you’re not saving, it’s time to get started. Start small if you have to and try to increase the amount you save each month. The sooner you start saving, the more time your money has to grow.

If your employer has a traditional pension plan, check to see if you are covered by the plan and understand how it works. Ask for an individual benefit statement to see what your benefit is worth. Before you change jobs, find out what will happen to your pension benefit. Learn what benefits you may have from a previous employer.

5. Consider basic investment principles

How you save can be as important as how much you save. Inflation and the type of investments you make play important roles in how much you’ll have saved at retirement. Know how your savings or pension plan is invested. Learn about your plan’s investment options and ask questions. Your investment mix may change over time depending on a number of factors such as your age, goals, and financial circumstances. Financial security and knowledge go hand in hand.

Putting money away for retirement is a habit we can all live with. Remember…Saving Matters!

6. Don’t touch your retirement savings

If you withdraw your retirement savings now, you’ll lose principal and interest and you may lose tax benefits. If you change jobs, leave your savings invested in your current retirement plan, or roll them over to an individual pension plan or your new employer’s plan.

7. Ask your employer to start a plan

If your employer doesn’t offer a retirement plan, suggest that it starts one. There are a number of retirements saving plan options available. Your employer may be able to set up a simplified plan that can help both you and your em- ployer.

8. Put money into an Individual Retirement Account

You can put .Kshs. 3,000 or more a month into an Individual Pension Plan (IPP); you can contribute even more if you are 50 or older. You will enjoy various tax advantages.

When you open an IPP, you have two options – to contribute the amount before tax or contribute the amount after tax. The tax treatment of your contributions and withdrawals will depend on which option you select. IPP’s provide an easy way to save. You can set it up so that an amount is automatically deducted by check off or bank account and deposited in the IPP or send your contributions via Mpesa.

9. Budget on the back end

Create a budget you can stick to just before you retire. After years of creating new budgets as your net worth grew more and more positive, you should be a pro at making budgets by now. This is not to say that you have to look forward to living frugally for the rest of your life, just wisely. What is it you’ve always envisioned yourself doing when you retire? If it’s travel, then cre- ate a travel category as a monthly expense in your retirement budget. If it’s spending time with your family, then create a “spoil the grandkids” category.

10. Ask Questions

While these tips are meant to point you in the right direction, you’ll need more information. Ask questions and make sure you understand the answers. Get practical advice and act now.

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