Your employer can be a valuable resource for information about how to plan for a financially secure retirement. Opening a dialogue about your eventual retirement can only benefit you, so don’t be shy.
By Veronica Baxter
If your government offers a state pension to those over a certain age, you will likely need to supplement that with other savings and investments. Here are five tips to help you get the conversation started with your boss or human resources staff, save for retirement, and establish healthy spending habits so that you will be comfortable in retirement.
Tip #1: Ask About Corporate Retirement Plan
In most countries, employers can start pre-tax retirement savings funds for employees, and in many cases, employers match employee contributions to some extent.
It would be leaving money on the table not to take advantage of your employer’s retirement plan. Contribute at least the amount your employer will match and if your employer increases that amount, you should increase your contribution.
If your employer offers a percentage of earnings as a pension plan, know that this will likely not be enough to live on in retirement. Plan to save on your own.
Tip #2: Start a Personal Retirement Plan
What is 10% of your earnings? If it is greater than the amount you are contributing to your employer’s retirement plan, invest the difference in a personal retirement account.
The types of retirement accounts differ world-wide. Your banking institution can advise you as to what pre-tax and post-tax retirement accounts are available. They will likely vary in returns and in risk, from a low-interest savings account to higher-risk, but higher-reward fund that invests in stocks and bonds. The rules of thumb are — diversify your portfolio, and as you age, shift your investment into less risky investment vehicles, as you’ll need the money sooner rather than later.
Tip #3: Ask about Group Life Insurance
If your employer offers group life insurance, enrol. This will give your family some peace of mind should something happen to you. The coverage will probably be a multiple of your annual earnings, and if you have a young family and feel that coverage is not enough to replace your income, you can take out a 10, 20, or 30-year term life insurance policy in addition.
If AD&D (Accidental Death and Dismemberment) coverage is offered, take it. It is often offered as a rider to an employer’s group life insurance plan. This will protect some of your income streams should you suffer an injury and be unable to work.
Tip #4: Put 10% of Income in Retirement Savings, and another 10% in an Emergency Fund
After you’ve contributed 10% of your income to your employer’s retirement plan and to your personal plan combined, save another 10% for emergencies. This might seem like a lot to save, but these days financial advisors recommend that everyone have six or eight months’ worth of living expenses saved in case of emergency.
While it will take some time to save this amount, stick with it. It is far less expensive for you to pay for an emergency automobile repair or unexpected medical expenses with cash from your emergency fund than it is to take out a loan or incur credit card debt.
When you have saved eight months’ worth of expenses, take that 10% you’ve been saving and save it for something else. You might roll that amount into your personal retirement fund, but why not save some for a special trip? A new stovetop? Something to help you feel you are financially successful because you are if you’ve followed this advice! What about your children’s education expenses?
Now that saving is a habit of yours, keep doing it and shift your savings objective if your emergency fund is fully funded. If an emergency occurs and you must dip into your emergency savings, don’t worry – that is what it is for! When the emergency passes, simply build your fund up again by funnelling that 10% into it each pay period.
Tip #5: Make a Budget and Stick to It
Living within your means is crucial to your financial comfort now and in retirement. The way to avoid incurring debt for everyday expenses and wasting money paying outrageous interest rates is to commit to living on the remaining 80% of your income. This will establish good habits for when you are on a fixed income in retirement.
List your expenses, and don’t forget to list things like entertainment, hobbies, gifts, or travel. Then take a hard look at what you are spending money on. Would you be satisfied with a less expensive cell phone or internet plan? Could you eat out twice a week instead of three or four times? Might you wear a sweater when it’s cold out, and turn your heat down?
Don’t be stingy – be frugal and sensible. Again, you are creating good spending habits that will serve you well in retirement. You can’t buy that feeling you will get from living comfortably within your means, having saved for retirement and emergencies. Good luck!
About the Author
Veronica Baxter is a blogger and legal assistant living and working in the great city of Philadelphia. She frequently works with Chad Boonswang, Esq., a life insurance beneficiary lawyer in Philadelphia.