How to Save Money for Retirement

Many people look forward to the day that they will be able to retire and pursue leisurely activities. The pension offered by the companies where you worked during your career, however, may not be enough to provide you with the monthly income to support the lifestyle that you would like to lead. In addition, you may want to leave money for your children and grandchildren. If you save money for retirement, you can supplement your income.

Instructions

Difficulty: Easy

1. Determine how much money you will need each year when you retire. This estimate should take into account the costs associated with day to day activities, travel and insurance costs (see Resources below).
2. Calculate how much money you will receive each year from your pension. This will be based on both your salary and years of service to each of the companies for which you worked, as well as the retirement plans that they offered.
3. Calculate the Social Security benefit that you will receive after retirement. From each paycheck that you receive, up to an annual maximum, money is deducted and contributed toward your Social Security benefit. Based on the amount that you contributed over your career, you will be eligible for annual payments (see Resources below).
4. Determine how much money you need to save for your retirement. This will be based on the amount of money that you have saved to date, the rate of return you expect on your savings, your pension and Social Security benefits, how much you plan to spend after you retire and how long it will be until you retire. Based on your anticipated income and expenses, you can determine how much money you need to save toward your retirement (see Resources below).
5. Take advantage of tax deferred retirement investment options. Investments such as 401(k) and 403(b) accounts allow you to invest money before you pay taxes on it, letting it grow tax free until you withdraw it. If you are in a lower tax bracket during your retirement, you will save money on the taxes that you must pay.
6. Save whatever additional money you need in traditional investments. While you must pay taxes on these savings and the interest that they earn, you will be able to access the money before you retire if you need it.

Tips & Warnings

• If you are uncertain how to calculate your retirement benefit from your employer, the benefits administrator at your company can assist you in determining the amount of your pension.
• Tax deferred retirement plans have annual contributions limits that are specified by the IRS each year.
• Be sure that you will not need the money that you are contributing to tax deferred retirement plans before you retire, as there are penalties for early withdrawals.