Retirement isn’t magic, and doesn’t require a lot of insider tricks. Ultimately, it’s simply a matter of socking away enough money over a sufficient length of time to see a return. Yet research consistently shows thatmost people don’t have enough money saved for retirement. The high costs of healthcare, increased demands from young adult children, and the ever-rising costs of living all conspire to make retirement only a distant dream for some seniors.
If you’re befuddled by the mysteries of retirement, here are the five retirement commandments you must obey.
Get Your Debt Under Control
Here’s a harsh reality: no matter how good your retirement savings accounts are, odds are high that they pay less interest than your debts demand. The average credit card interest rate hovers around 15% — a return most would-be retirees can only dream of seeing on their investments. So even if you’re socking away plenty of money, your debts are draining it more quickly than your interest payments are. Pay down your debt as quickly as you can; it’s almost the same as saving for retirement.
Find Ways to Live Frugally Now
There’s no time in life during which it’s a good idea to live beyond your means, but when you’re on a fixed income, doing so is especially dangerous. Find ways to slash your expenses now. Not only will it give you more money to sock toward retirement. It will also help you master the art of not spending everything you take in—a skill every successful retiree knows all too well.
Early Savings Means an Early Reward
When you’re young and saving for a house or trying to get ahead in your career, retirement savings is probably the last thing you’re thinking about. But this is the best time to save. The $1 you put away in your twenties is more like $5 or $10 in your fifties. Even if you cannot afford to put much money away, today is always the better time to start saving. Just $1 a day—or even a week, if that’s all you can afford—can help you slowly accumulate a nest egg. And if you’re worried that you’re behind but have financial problems, save anyway. You won’t miss the paltry sum you save, but your older self will thank you.
Choose Affordable Housing
Not sure how much home you can afford? Here’s a simple rule of thumb: don’t borrow more than 2 ½ years of your income on your mortgage. So if you make $50,000 per year, $125,000 is the upper limit of what you can borrow. This might mean you have to forgo your dream house for now, but a paid-off or nearly paid-off home in retirement is a worthy investment and a significant asset. Moreover, if you own your own home you can take out a reverse mortgage and receive monthly payments to help cover other expenses.
Set a 10% Savings Goal
If you’re unsure how much to sock away for retirement, an easy number to remember is 10%. As long as you start in your twenties or thirties, this should give you enough for a sizable nest egg. This rule is merely a suggestion, so if you can afford to save more, do. Economic changes, the age at which you start saving, the market, and a host of other factors can affect the extent to which 10% yields a decent retirement fund.