Everyone knows that saving for retirement is important, but that doesn’t necessarily mean that everyone has managed to get it done. Social Security provides an average of $1,294 per month to retired workers, and Medicare provides basic hospital and medical insurance to retirees. Nevertheless, it’s best to have adequate savings to cover unplanned and uninsured costs. If retirement age is looming, there are still several ways to maximize savings and plan for the future.
Pay Off Debts Immediately
Nothing strangles a savings plan like personal debt. Although it may seem like a better plan to pay off minimum amounts and put more cash into a savings account, this is a bad move. Letting debts linger this way is only costing more in the long term, since interest rates will effectively negate any minimum payments. Draw up a budget that targets debt and gets it significantly diminished within a year. At the same time, start putting a bit of extra cash in the bank and letting it sit.
Sound obvious? The problem is, most people don’t cut expenses the way they really ought to. Instead of getting rid of a second car, or cutting the luxury vacation, non-savers prefer to forgo the coffee shop and weekly shopping trips to the mall. The truth is, it’s the big expenses that need to be cut, wherever and whenever possible.
There are many ways to downsize, depending on one’s property, expenses and location. The first step is to make an inventory of property that it is possible to liquidate. Camper vans, old trucks and cars, vacation homes and unused, functioning utilities should be valued and sold. Not only will the value of these items decrease over time, but the maintenance fees of unused machinery and property is a drain on anyone’s budget. Money earned from any property sales should be put directly into a retirement savings account, preferably an IRA.
Open an Individual Retirement Account
Employers generally set up their employees with a 401(k) plan, but this is not always the case. If a soon-to-be retiree has no IRA, he or she should set one up immediately. At this late stage, it’s important to put away the maximum amount of savings each year. Traditional IRAs allow savers to deduct savings from their taxes, however, Roth IRAs do not. The upside of the latter account is that future withdrawals are generally tax-free. Plus, once you’re over the age of 50, maximum additions to the IRA increase by $1,000.
Consider Opening a Health Savings Account
Basic Medicare, supplied to all American retirees, covers many things, but not everything. Doctor’s visits, lab tests, hospital admission and hospice stay are all covered by Part A and Part B of the Medicare plan, however most of the time patients need to pay a deductible. On top of that, Medicare doesn’t cover dentures, most dental work, eye exams, foot care, hearing aids and hearing tests. Health Savings Accounts are tax-deductible, and the amount rolls over from year to year if it’s unused.
When it comes to retirement, it’s never too early or too late to start putting money away. Stop procrastinating and start planning today.