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How to Build a Nest Egg
Ahhh, retirement. Who doesn’t think about the day when you no longer have to
work? The reality is, you also need a steady source of income to support your
lifestyle once you get there.
Laying the nest egg
The first thing you can do is determine your game plan:
When do you plan on retiring? The current age of retirement is 65, as
recognized by the U.S. Social Security system. This age may likely increase in
the future. Also, your ability to support your household in retirement can play
a role in the age you decide to retire.
How much money will you need each year that you are retired? This is
determined by the lifestyle you’d like to maintain after you retire and the
amount of financial obligations you will have at that point in your life.
How many years can you depend on your nest egg after you retire? The
general rule of thumb is to expect to live 20 to 30 years after retirement,
depending on your age and health at the time you retire.
Caring for the nest egg
Your retirement income will usually come from the following sources: Social
Security, company retirement plans, and savings.
Social Security. The amount you see on your paycheck that goes to “FICA”
(Federal Insurance Contributions Act) is the amount you are contributing to the
Social Security Program. Current contributions by taxpayers are used to benefit
Social Security recipients today. As large numbers of baby boomers retire in a
few years, and people live longer, the proportion of retirees to workers will
increase and future distributions may be reduced. Remember, Social Security is
not intended to be the sole source of retirement income. That's why it is
important to have other sources of guaranteed income when saving towards
retirement.
Company retirement plans. These can be either in the form of a pension
plan (also known as a “defined benefit plan”), or an employer-sponsored 401(k)
or similar retirement plan (also known as a “defined contribution plan”). If
these plans are available to you, they are one of the best ways to take
financial responsibility for your retirement planning, and can be key to
reaching your retirement goal.
Personal Savings. Social Security and company-sponsored plans aren’t
your only options for the upcoming golden years. Your personal savings
account(s) will need to provide for you, too. Keep your money in a safe place
that accumulates interest and watch it grow. Be sure to check with your
financial advisor to see what’s best for you.
Hatching the nest egg
As you approach retirement, if you have invested in aggressive stocks or funds,
you may want to shift your finances to less risky options since you’ll be
relying on that source of income soon. You can also start to budget your
monthly expenses with your plans for vacation, hobbies, or however you plan to
enjoy your free time once you retire. With careful planning and discipline, you
can make sure your nest egg is ready when the time comes to crack it open.
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