Retirement is a big event for many people. You work, save up your entire adult life, and then slowly enjoy your golden years.
Unfortunately, many people fall behind and struggle to save enough money for retirement. According to a recent AARP survey, 20% of Americans age 50 and older have no retirement savings, and more than half worry they won’t have enough money to survive into retirement.
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GOBankingRates recently spoke with Frank H. Although he was never part of the 20% with no retirement savings, he said he made some mistakes along the way. During our conversation, he told GOBankingRates three things he would do differently if he had to do it all over again.
Money expert Dave Ramsey also shared three things to consider when deciding whether you’re ready for retirement.
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“When I first started working after college, 401(k) plans didn’t exist,” Frank says. “They weren’t developed until the late 1970s, and I didn’t have access to them until the 1980s. Instead, I kept the money in a personal savings account. I was hoping it would supplement what I would receive from Social Security.”
Frank continued: “The problem was, I didn’t really have a plan. I didn’t know how much I was going to need. I was just blindly saving money.
“Today, things are very different. When I talk to my son, he says he has a retirement number. He knows how much he wants to save for retirement, and he knows how much he wants to save each month based on past earnings. I know what I should do.”
Planning is one of the most important things you can do in retirement. Understanding how much money you need each month to afford your retirement can help you figure out how much you’ll need in your retirement accounts by the time you retire.
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“I had been working and saving for over 20 years by the time the Roth account was opened,” Frank said. “But I wish I had understood their powers sooner.”
Frank continues, “Most of my retirement savings (excluding Social Security) are in traditional 401(k)s or IRAs, and when I make distributions, a sizable amount is withheld in taxes. was not considered when Roth accounts became available.
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Traditional retirement accounts are a great way to save for retirement, but they require additional planning. Donations reduce your taxable income in the year you donate. However, you will have to pay taxes on the earnings when they are withdrawn.
Roth accounts can help you change your tax liability in retirement. Currently, you don’t receive any tax benefits when contributing to a Roth account, but you can withdraw your retirement funds tax-free.
“When I retired, I was ready to retire,” Frank said. “I’ve been working for the past 40 years and I’m tired.
“I was old enough to start collecting Social Security, but I didn’t think about how collecting before full retirement age would affect the amount I received. Not really, but it’s nice to have some extra income every month.”
Workers can begin collecting Social Security benefits when they reach age 62, but their benefits are reduced. If you start collecting Social Security at age 62 instead of waiting until your full retirement age of 67, your benefits will be reduced by about 30%.
You also need to consider what you’re giving up if you don’t collect until age 70. You could potentially collect an additional 24% by deferring collection for an additional three years after full retirement age.
Understanding the math before you retire can help you make the best financial decisions.
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This article originally appeared on GOBankingRates.com: I’m a retired baby boomer: 3 things I wish I had done differently to better prepare for longevity in retirement
