Ten Ways to Prepare for Retirement

People are living longer these days, which means that once you retire you will probably still have much living to do. The old rule of thumb was to plan for approximately 10 years of retirement. Nowadays, however, planning for 20 years of retirement makes more sense. In turn, it makes sense to plan for retirement earlier than ever before.

1. Approximate How Much You Will Need

Consider your desired year of retirement and the retirement lifestyle you hope to enjoy. If you plan to travel the world, you'll need to sock away quite a bit more money than if you plan to spend most of your time visiting locally with friends and carefully spending your nest egg. Estimate how much you will need to live your preferred lifestyle each year, and set that amount as your goal.

2. Estimate the Inflation Rate

$100,000 today isn't likely to go as far as $100,000 in 2040. You will need to estimate inflation to determine the actual dollar amount of your goal — a challenging task. A number of calculators are available on the Web. Experiment with several of them to get a ballpark figure of the amount you will need. Alternatively, you may consult a professional financial planner to receive a quality estimate. Remember, however, that an estimate is exactly that, since no one can predict the future.

3. Participate in Your Company Retirement Plan

If you work at a large company or in a government position, it’s likely you already contribute to an employer-sponsored retirement plan. Whether it’s a Public Employees Retirement System, or PERS, account or a 401(k), your money should remain safe and be available for you when you retire. If your employer matches your contributions, that’s all the better since it's free money! If you haven't already signed up for your company plan, do it today. If a company match is available, elect to contribute the highest percentage your employer will match and watch your account grow more quickly.

4. If Your Employer Doesn't Offer a Retirement Plan, Ask for One

Some smaller businesses don't offer retirement plans. If your company doesn’t, meet with your employer and initiate a conversation about instituting a retirement plan. Point out to your employer that offering a retirement plan has numerous employer benefits, including a number of important tax benefits.

5. Refrain from Early Withdrawals

Once your retirement fund is up and running, do not touch it. When times are tough and money is tight, it may be tempting to borrow from your retirement account as an easy way out of a jam. Don't do it. You'll jeopardize your future. In addition, you‘ll be nailed with penalties when you file your federal income taxes. It's a short-term solution that creates long-term problems.

6. Set up an Individual Retirement Account, or IRA

Even if you have a company or other retirement account, you can contribute $5,000 annually to an IRA for even more savings power. Research traditional IRAs and Roth IRAs, or consult with a financial planner to find out which is right for you.

7. Learn Investment Strategies

Learn about different types of investments. Speak with a financial planner to determine your options. Investments are handy tools for saving, especially for the long term.

8. Plan for Post-Retirement Investments

To help boost your retirement income, continue to invest money after you retire. Remember, you may spend a few decades in retirement. It will be important to have an income even when you are no longer working.

9. Save Money Now

Begin living more frugally today. Learn to live below your means to put away more money for the future. It's not difficult, but it does require a mindset change. Enjoy activities, such as dining out and vacationing, but in ways that cost less than you may have spent previously. Even something as simple as buying a used vehicle instead of a new vehicle will save you thousands of dollars.

10. Take on Extra Work Now to Save More for Retirement

If you have the time, work a part-time job to earn extra money. You could also pick up some extra cash doing online work. Plenty of opportunities are available, and even an extra $20 per week will add up over time, especially if it's multiplying in a retirement account.

Jessica Bosari is a freelance writer and blogger for various publications and her own telecommute writing jobs blog. You can read more of Jessica's work here. If you have any comments or questions about SavingTools or about saving money, leave your comments in the form below or email jessica@savingtools.com. Thanks!