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No matter how retirement may seem far away, it will come sooner than you think. It is important to be ready when that time comes. This article will inform you on some of the basic things you need to know about retirement.
JP Morgan Chase (JPM) has done some research and has some numbers and important factors when it comes to planning your retirement.
How much do I need to save?
If you start saving from the age of 25 and retire at the age of 67, JP Morgan Chase claims:
- millennials with median income will need to save 4% to 9% pre-tax
- millennials with income in the affluent category will need to save between 9% and 14% pre-tax
- millennials who are considered high net worth will need to save between 14% and 18% pre-tax
The thing with the affluent and high net worth millennials is that they need to save more due to the higher taxes. Another important factor is the fact that they put less in the Social Security each year. This means that they need to save more in order to attain a lifestyle that they aspire to in the retirement age. Beware, not everything is so simple. There are several factors that also affect on how much you should be saving.
Do you have an access to retirement plans?
In order to save more, tax-protected account is a necessity. Relying only on Social Security is not enough, because it pays only about $1,500 per month. That amount is hardly enough to get by. This is why you need a retirement plan, and not every employer and company have it. For example, the more you save in a 401(k) plan, the less you need to save on your own, and vice-versa. Of course, it doesn’t mean that you need to work there until you retire. If you decide to change the job, you take the money that you saved with you. With 401(k) plan, you can save up to $18,000 in 2017 at a tax deferred benefit. Without it, you will need an individual retirement account where you are capped at saving $5,500 a year. That also means that more will have to go to your taxable savings account.
Stocks and bonds
Stocks and bonds are a great way to save money. If you invest in a stock or bond today, it may pay off greatly in the future. However, it is important to have the right allocation to your stocks and bonds. If it is too low, it may not end up as how you’ve hoped for. The researches show that people between the ages of 21 and 36 save about 52% in cash. The problem with that is that you can’t save nearly as much without investing. The most advisable plan is to invest your money first, then pay the bills. At the very end comes spending the money you have left for fun and personal pleasures. The problem is that most people do the complete opposite, and that’s why they find themselves in deeper problems afterwards. That kind of a lifestyle can only go for a certain amount of time. That kind of investing is a stressful game to play, but without it, you will need to get really creative on how to increase your savings.
Periods without a job
In a world we live today, technology is advancing really fast. It is a blessing and a curse, all in one. The good side is that technology and machines help us a lot in our everyday lives, including work. The downside is that machines are often more precise, efficient and they save money. More and more jobs are looking to be replaced with machines. This is a reason why more and more jobs are uncertain, and more and more people are getting laid off. Also, due to the globalization that comes with the Internet, the globe is much smaller place than it used to be. People from different countries and nations now have the opportunity to work your potential job. They are also more likely to do it for a smaller amount of money.
It is a good idea to have an emergency fund while you are working. Emergency fund will serve you as a safety net in case you find yourself in a financial crisis. That way, your retirement fund will be intact. However, note the importance of knowing when you have a real financial emergency. Be decisive when it comes to setting boundaries. Have a set of rules in which cases you may withdraw money from that fund, for example:
- you are currently unemployed and can barely make ends meet
- a natural disaster occurred and you need that money to recover
- you are having unexpected medical or dental costs
- you are having critical home or car repairs
With the job uncertainty that we are facing today, the retirement age is looking even more uncertain. To have a more optimistic future, a good retirement plan is a must. Ideally, you should save minimally 15% to 20% of your gross income. With a retirement plan, do your research on stock markets, bonds, mutual funds and overall economy. That way you will be wiser when it comes to investing your money, and getting the most out of it.