Planning for retirement

I never thought about planning for retirement until I got divorced and learned that my financial situation was a lot worse than I thought.  It occurred to me then, that I had no idea what it meant to plan for retirement.  I had no understanding of 401(k)s or IRAs.

Because I’m now divorced, I have to plan for the day when I’m no longer working.  Obviously, I don’t have a spouse who will be supporting me (and I may never have a spouse).   Likely, I’ll always work because I like being productive.  However, I want to choose what work I do after I’m 65.  Ideally, I won’t be driving a school bus in my late 60s to support myself during retirement.

Given that I may never remarry, I can’t count on someone else’s retirement savings.  So, after this realization, I decided to make a plan for my retirement and added it to my List of 50 Things Before I Turn 50. I knew I had to figure out now what I would need to put aside for my golden years so they could truly be golden.  Planning for retirement puts control in your hands now for when you can’t control your hands later (hee, hee).

According to the United States Department of Labor, only half of Americans have calculated how much they need to save for retirement.  And, the average American spends roughly 20 years in retirement.  That is a long time! “Experts further estimate you need 70-90 percent of your preretirement income to maintain your standard of living when you stop working.”  That feels like a lot of money.

Saving for retirement

Planning for retirement begins with saving for retirement.  Luckily, I’m a saver.  However, the money I would have saved if I’d been single is very different from the amount we saved as a couple when we were married.  As a result, I haven’t been saving for retirement for very long.  But, at least I’ve started.   It makes sense that the sooner you start saving, the longer your money has time to grow.

Probably the most difficult thing about planning for retirement is understanding what your retirement needs are.  When I was married and not working full-time, I really didn’t think much about what I would need for retirement.  I knew we were saving money, and I left it up to my husband. Now that I’m solely responsible for my financial future, I can now see that this was a mistake.  I should have taken a more active role in our retirement planning.

Contributing to a 401(k)

Ever since I started working full time again, I have always contributed to a 401(k).  I’m able to contribute automatically to a 401(k) with work.  These 401(k) plans are great because your taxes are lower and your employer’s match (up to a certain percentage) can be significant. I allocate a certain amount from every paycheck so I don’t ever have to think about it.

Saving with IRAs

Another way to plan for retirement is to put money into an Individual Retirement Account (IRA).  You can put up to $6,000 a year into an IRA.  If you’re older than 50, you can contribute even more.  IRAs are great because of the tax advantages they provide. Right now, I’m trying to decide between adding more money to a Roth IRA or a Traditional IRA.  With a Traditional IRA, you get the tax break up front.  With the Roth IRA, your deposited money has already been taxed.  As long as you withdraw the money after age 59.5, you don’t pay any taxes.

As you may have figured out, after you begin to start saving for retirement, you should never touch your retirement savings.  Otherwise, you’ll lose principal and interest, tax benefits, and may have to pay early withdrawal penalties.  It’s better to think of it as completely off-limits.

Accelerating your mortgage payments

In addition to setting aside savings for retirement, you can also begin accelerating your mortgage payments if you have a home.  This way, you can pay your home off before retirement. I contribute a few hundred dollars more to my principal payments each month.  Again, I do this automatically so I don’t ever have to think about it.

I hope I can work way past retirement.  But, if I can’t work, at least I’ll have a little money put aside that can last me until I pass away.  If not, I may be driving a yellow school bus to make ends meet.  While definitely an option, this isn’t my idea of “golden” years.