Sizing Up Your Retirement Nest Egg Needs
McElhaney lives modestly in a one-bedroom condo in
Few Americans know how much they need to save for retirement. Less than half of current workers have even attempted to calculate how much money they will need, according to a recent
Monitor current expenses.
Unless you're intending to enter retirement mortgage-free or to downsize significantly, it's safe to assume your expenses will remain largely the same once you stop working. "I really don't think my expenses are going to go down that much because I'm going to have more free time on my hands and I am going to want to travel more," says
While most people are able to eliminate some costs when they retire -- say, for professional work clothes and transportation to and from the office -- they also incur new expenses as they increasingly require assistance with home maintenance and develop health problems that require medical care. Retirees who travel or take up expensive hobbies may even see their cost of living increase. Says
Most Americans don't have to finance retirement completely on their own. Some employees have traditional pensions or purchase annuity products that guarantee income for life. Retired workers also received
Adjust for inflation.
Inflation erodes the value of your savings and reduces your purchasing power in retirement.
Budget for taxes.
Your entire 401(k) balance isn't available for spending in retirement. Regular income tax is levied on withdrawals from traditional 401(k)'s and IRAs. If you withdraw
Consider health expenses.
Healthcare costs can make a huge dent in your retirement savings. Even after retirees qualify for
Make savings automatic.
Socking away money for retirement as soon as you begin working full time is generally the best way to accumulate a large retirement account balance. "You should be saving a minimum of 10 percent of your gross income in 401(k)'s or taxable accounts," says
Grow Your Nest Egg.
Automate your savings by having a portion of each paycheck directly deposited into a retirement account. Take full advantage of employer contributions and avoid taxes and investment expenses that cut into returns.
Maximize your 401(k) match.
A vested employer 401(k) match is an instant return on your investment.
Retirement savers can contribute up to
Avoid investment fees.
Shop around for inexpensive investment options in order to maximize returns.
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Personal Finance - Sizing Up Your Retirement Nest Egg Needs
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