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9 Questions to Tell If You’re Retirement Ready

First published: 18 May 2022 @ 6:00 pm

If you’re in your 20s, 30s, 40s, or 50s and have done little to prepare for a retirement plan, it’s not too late. The earlier you plan for your retirement, the better off you’ll be.

This is not to say that you should dive into the details right away. But it is important to get a general sense of how things are going and where you stand so that you can focus on what needs to be done next.

The earlier you start this process, the more likely it is that your efforts will pay off and give you peace of mind when retirement day comes. And even if it doesn’t work out as well as planned, at least it will give you something to look forward to.

Empty seats on the beach representing a retirement plan.

Photo by Aaron Burden on Unsplash.

We’re hoping that this article will help people like yourself by providing some answers to some questions that are often asked by people who are just starting in their career and have not yet begun saving for retirement or have put only a small amount aside each month.

We’d like to share our answers with others in hopes that they might benefit from them as well. Hopefully, this article will be of use to people who are still relatively young (in their 20s or 30s) but have already been thinking about their retirement.

So, let’s get started.

1. How Much Money Do I Have Now?

A good place to start a retirement plan is to find out how much you currently have in your bank account. If you don’t know, it’s best to go to your bank and ask them.

You can also go online and check the current balance of your checking or savings account on the website of the bank where you have your account.

2. Should I Be Saving More Than I Am Now?

Most people are already saving enough for retirement, but not necessarily for a comfortable retirement. A retirement that will allow you to enjoy life and do what you want is what we’re aiming for here, so we’ll use a hypothetical example to show how much you should be saving to achieve this goal.

If you are under age 40 and make $50,000 per year (this is not a recommendation), it would be reasonable for you to save about 8% of your income per year ($4,000).

If this amount seems too high for you at this point, then don’t worry; start with a lower amount such as $3,000 or $2,000 and increase it over time as your income increases.

3. What Should I Do With My Savings?

If you don’t need the money in your savings account for an emergency, it’s a good idea to invest the money in an account that will earn you a higher rate of return than the one that you’re currently saving in.

4. Should I Save for Retirement With A Traditional or Roth IRA?

The answer to this question depends on your current tax situation and what kind of income you’ll have after you retire. If you’re not currently paying any taxes, then a traditional IRA would be better because it’s tax-deductible and all of your contributions will be deductible.

If you are paying taxes now, then the choice becomes more complicated because there are different tax rates for people who contribute to either type of IRA.

If you expect to be in a higher tax bracket when you retire, then a traditional IRA would be better. If you expect to be in a lower tax bracket when you retire, then a Roth IRA would be better.

5. Should I Contribute to a 401(k) or Another Retirement Plan?

The decision to contribute to a 401(k) or another type of retirement plan depends on your current income, your savings, and how much you expect your income to increase over the next few years.

You can choose to save more in the 401(k) if you want. If you’re saving for retirement and need the money for an emergency, then contributing more is better than saving less.

However, this may not be the best choice if you expect your income to increase substantially in the future because it will cause your taxable income to increase by $2,000.

If this is not a problem for you (and it may not be), then saving more in a 401(k) is probably better than saving less.

6. Do You Have Unpaid Debt?

If you have a credit card balance or a loan that is accruing interest, then it would be wise to pay it off long before you decide to retire. If you can’t afford to pay it off right now, then at least make an effort to pay the minimum payment.

7. Should I Be Saving More If I’m Making More Money?

Yes, you should save more if your income increases because this will allow you to enjoy retirement more and have less stress in your life when retirement day comes.

If your income is expected to increase significantly in the future, then continue contributing to your 401(k) or other retirement plans because this will help ensure that you’ll have enough money when you retire.

Also, don’t forget about tax-deferred accounts such as an IRA or a 401(k). You can contribute up to $5,500 per year ($6,500 if you’re age 50 or older) into these accounts and these contributions are deductible from your taxable income (but remember that all of the money contributed will not be tax-deductible until after it’s invested).

An old man planning on a retirement plan.

Photo by Beth Macdonald on Unsplash.

8. What Kind of Investment Account Should I Use?

The best choice for your investment account depends on your current income and how much you expect your income to increase in the future. If you expect your income to increase significantly in the future, then you should invest in stocks.

If you expect your income to increase less than you do now, a bond fund or other investment account would be a good choice.

For most people, the best choice is a combination of stocks and bonds, but this is not always possible because there are different tax rates for people who contribute to different types of retirement accounts.

9. Should I Be Investing in Stocks or Bonds?

You can choose either a stock or bond fund depending on what suits your personal needs best. If you’re young and just starting in your career, then it’s probably better to invest in a stock fund because it will allow you to earn more money if the stock market goes up.

In the long run, however, stocks have been known to go down more often than they go up and this may not be something that you want to risk when it comes time for retirement.

Therefore, if the value of stocks declines significantly over time (as it did during the Great Depression), then you may not be able to afford to live off of the money that you have saved in stocks.

This is why it’s important to diversify your investments and invest in both stocks and bonds.

If you’re an older person who has already retired, then a bond fund or some other investment account may be a better choice because it will provide you with a guaranteed return of about 3% per year.

Manage Your Money and Housing with Us

It’s never too late to start planning for retirement. You don’t have to do it all at once, but it’s important to get a general sense of how things are going and where you stand so that you can focus on what needs to be done next.

Our blog, HandyWork, has a wealth of information on how to manage money and housing. We have many articles that cover topics such as savings, insurance, security, interior designs, and more. You can find them all here.

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