Personal Finance Success – Part 2: How Much do I Need to Retire?

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Personal Finance Success – Part 2: How Much Do I Need to Retire?Retirement - something that most people don’t think about until it is too late. As we continue our personal finance series, we move on to a very important area that we all should be paying close attention to, no matter how old you are. This week we will be discussing how to properly save for retirement with the help of USAA’s very own, JJ Montanaro to help us dig deeper into these questions. 

 

Angela: How much is needed to retire, does it vary for each person?

 

JJ: Do you like filet mignon or hot dogs? I’m just joking, sort of, but the answer to your question is really based on your overall situation and goals. I’ve worked with couples that have retired with very little savings, but they’ve had military retirement, government retirement and Social Security all coming in each month.  If you’re just starting your working career, I think it’s all about good habits: spending less than you earn, saving consistently and investing for the future. As you get closer to retirement, and I’m carrying my financial planner baggage here, you should start to do some planning that incorporates your vision for retirement…your lifestyle, income and expenses. There are calculators that can help do the heavy lifting along the way.

 

Angela: What ways are there to save money for retirement?

 

JJ: There are countless ways to save for retirement. You can earmark savings bonds, mutual funds, brokerage accounts and any other investment you make for your retirement. However, if you choose accounts that Uncle Sam has bestowed special tax treatment upon, it may allow you to get the most bang for your buck. Here, I’m talking about a 401(k) at your civilian employer, the Thrift Savings Plan through the military or an IRA you set up on your own. All of these provide powerful tax advantages like tax-deferred growth, the opportunity to reduce what you pay in taxes today or the potential for tax-free income in retirement. 

 

Angela:  How will Social Security affect me once I retire?

 

JJ: Social Security is a big deal. In 2016, the average benefit for a couple was just over $2,200 per month and that can represent a significant portion of your retirement income. How and when you take Social Security benefits is a big deal. While you can begin retirement benefits as early as age 62, you will be penalized with permanently reduced benefits by as much as 35% if you start taking benefits at any time before what Social Security calls your Normal or Full Retirement Age. For anyone born after 1960 that age is 67. I always encourage people to visit www.ssa.gov , set up a my Social Security account and see where you stand.

 

Angela: When money is tight, is it more important to save for my child’s college education or my retirement?

 

JJ: You’ve probably heard this before, but the saying “there are no loans for retirement” is pretty darn accurate. In a perfect world, we will be able to save for both retirement and our kids’ college, but if push came to shove and I had to pick one or the other, I’d pick my retirement.

 

Angela: How will the Thrift Savings Plan (TSP) benefit me for retirement?

 

JJ: I’m a huge fan of the TSP. Historically; only about 40% of military members have taken advantage of this easy to use, inexpensive and powerful retirement savings vehicle. I’d encourage everyone to take a look at participating. It can be a great way to boost your retirement savings with a portion of your drill pay.  You sign up at myPay and can allocate a fixed dollar amount or percentage of your pay to this employer retirement plan and then make or adjust your investments at www.tsp.gov. If you’ve got questions, visit the TSP website.  One issue I’ve run into working with folks in the Guard or Reserve is the need to understand that the contribution limits for a 401(k) at their civilian employer and the TSP are aggregated. So, in 2016 those under 50 are capped out, unless you’re deployed to a combat zone, at a total of $18,000, not $18,000 each. 

 

Have any questions on retirement? Ask us below!

 

Related Story:

Personal Finance Success - Part One: How To Build Credit

 

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About the blogger:
Angela Caban is an Army National Guard spouse, freelance writer, published author and branding expert. Her husband was one of the many soldiers impacted by the unprecedented activation of the National Guard in 2008. In 2010, she founded the Homefront United Network, a military spouse and family support blog created to assist spouses who do not live near an installation, but also focusing on bridging the gap between National Guard, Reserve and Active Duty spouses. She is also co-founder of SpouseTalks. As a branding and digital influencer, she has created content for A&E, Lifetime Network and PBS. She has an extensive background in Human Resources and Communications, with her Bachelor’s in Business Administration and a Master’s in Human Resources. Angela resides in the beautiful Garden State of New Jersey with her husband of 11 years and two children.

1 Comment
Limitless Contributor

Thanks, JJ. You've done another fantastic job by saying much without saying a thing.