8 Rules of Thumb for Retirement
Planning for retirement requires understanding how retirement accounts work and designing a strategy that fits your present and future financial situations. Even with unique retirement strategies designed for individual circumstances, there are retirement rules that everyone should follow. Knowing these rules help you meet your financial goals and retire comfortably.
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Save 10 Percent
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Financial experts suggest you save at least 10 percent of your income towards your retirement. Of course, you can contribute more, but 10 percent is an easy target for many people. As your financial situation changes over the years, maintain flexibility to adjust the amount you're saving for retirement.
Manage Portfolio
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The percentage of assets holding in your retirement portfolio should reflect your current age. Many younger adults' retirement portfolios contain more stocks than bonds. As you get older, you should increase the percentage of bonds in your portfolio. However, some stocks should remain so that you can continue to experience portfolio growth.
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Limit Withdrawals
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According to Claes Bell of Bankrate.com, you should limit your annual withdrawals to 4 percent of the money in your retirement account, which prevents you from depleting your retirement money too quickly. You may have to take a smaller withdrawal if your portfolio experienced significant declines or if you started saving for retirement at a late age.
Plan Transitions
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You should carefully plan for any life-altering transitions. For example, if you change jobs, get married or divorced or have kids, these situations may change your retirement strategy. For situations that cause your income to decrease, plan how you can maintain your current contribution amount. You may need to cut expenses or find ways to increase your income so your retirement plan is not affected in a negative manner.
Save More When Salary Increases
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When you start saving for retirement in your younger years, it's possible that you can only contribute a small amount. As your salary increases over the years, your retirement contributions should also increase. If you keep your expenses the same, you may not experience a change in your current lifestyle due to the larger contributions you make.
Pay off Credit Card Debt
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Paying off your credit card debt helps you save more money towards your retirement. Financial experts suggest you pay off your highest interest credit cards first to save more money over time. However, some people choose to pay off their smaller debts first because its helps motivate them towards achieving a debt-free life.
Social Security Benefits
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To maximize your retirement income, it is important to know when to take your Social Security benefits. Not taking your benefits as soon as you're eligible can allow you to qualify for the maximum amount of Social Security benefits. The longer your wait to take you benefits, the higher your monthly amount is when you finally take them.
Contribute Maximum Amount
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Contributing the maximum amount to your retirement account allows you to accumulate more money in your retirement account in the long run. Take advantage of any matching benefits offered by your employer. Contributing the maximum amount also allows you to take full advantage of the tax benefits offered to individuals contributing to retirement plans.
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