5 Ways to Improve Your Retirement Prospects in 2015
Saving more money for retirement is a common New Year's resolution, but it's only the first step in what you need to do to get better prepared for retirement in 2015. Here are five more ways you can improve your retirement finances next year.
Optimize your savings. It's a worthy goal to save a little more each year. You can tuck away portions of raises, tax refunds and bonuses. But it's also important to put that money to work for you. Your nest egg will grow faster if you take advantage of any employer contributions your company offers. And if you put your savings into a traditional 401(k) or IRA you can defer paying income tax on that amount. Roth IRAs and Roth 401(k)s allow you to pay the tax now at your current rate and then take tax-free withdrawals in retirement. Those with low and middle incomes may additionally be able to claim the saver's tax credit for their 401(k) and IRA contributions. Make sure you do your retirement saving in a place that gets you as many employer contributions and tax breaks as possible.
Reduce fees. 401(k) plans are now required to disclose how much you are paying in fees for each investment option. Use those documents to make informed decisions about the funds you choose for your retirement investments. "The 401(k)s have limited offerings and usually there is a table that lists what the expense ratios are, so try to go with the funds with the lower expense ratios, and in most cases that is going to be index funds," says Michael Hollars, a certified financial planner for Client First Finance in Sunnyvale, California. "You get a higher return over the long term because you are paying less in fees."
Plan to work longer. Delaying retirement, even if it's only for a year or two, can significantly improve your retirement finances. Working longer gives your savings more time to grow, boosts your Social Security payments and shortens the period of retirement you need to pay for. "If you are not retired, the biggest lever you have is working longer," says Alicia Munnell, director of the Center for Retirement Research at Boston College and co-author of "Falling Short: The Coming Retirement Crisis and What to Do About It". "If you can work until 70 you are probably going to be fine."
Create an online Social Security account. Social Security is the base the rest of your retirement savings will build upon. You should know how much you have paid into the program and have an idea of how much you can expect to receive in retirement. You can create an online account at socialsecurity.gov/myaccount to get an estimate of your expected monthly payments. It's also a good idea to brush up on how your benefits will change based on how many years you work and the age you first sign up for payments. "We can all take Social Security at age 62, but when you apply at age 62 you will get a benefit reduction and it's significant," says Laura Mattia, a certified financial planner for Baron Financial Group in Fair Lawn, New Jersey. "Generally, if you don't have to take Social Security early it would be great to be able to postpone it. If you are married, you can also optimize using spousal benefits and your own benefits."
Decide how you will spend your time. Never having to commute or deal with an unpleasant workplace ever again can certainly motivate you to save for retirement. But once you leave the workforce you will still need to fill each day with something you find worthwhile. Spend a little time dreaming about what you will do with your newfound free time. You might find that goals like traveling, spending more time with your grandchildren or getting to do your favorite hobby every day are even more powerful motivators to save for retirement than escaping from your job. Planning your retirement lifestyle can also help you to better forecast your retirement costs. "Try to think about how your lifestyle might change over the next 30 or 35 years, depending on when you are retiring," Mattia says. "There are certain costs that you won't be spending on anymore, but there will be new costs involving travel, hobbies, entertainment and health care."
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