It’s never too early to start dreaming about retirement. And it’s never too early to start taking stock of your situation and figuring out how to comfortably fund those retirement dreams. The key to success is to start saving early, educate yourself and review your plan and progress regularly. The following tips touch on a few of the many considerations involved in planning for income in retirement:

Get Clear Now on What You Are Spending and Saving Each Month

Many people have no idea what they spend every month. However, this – along with savings – is a crucial piece of information when planning for retirement.

If you aren’t sure how much you spend each month, you can estimate using the following method:

• From your pay stub, figure your monthly gross pay minus taxes.
• Total how much you are saving each month in your retirement, investment, savings and other accounts.
• Subtract your savings from your monthly after-tax income. The resulting figure is a close approximation of what you are spending each month.

Once you know these numbers, compare your proportion of savings to spending. If you aren’t saving 10% or more of your income, consider taking a more in-depth look at your finances to shift more dollars to savings.

Evaluate Whether Your Savings Are On Track

There is no one-size-fits-all solution for determining how much money any individual needs to live comfortably in retirement because differences in lifestyle, health considerations, life expectancy and other variables all play a role.

Still, “rules of thumb” can help you gauge how well you are tracking with your savings. A simple savings guideline from Fidelity recommends that you accumulate savings of 1x your salary by age 30, 3X by age 40, 6X by age 50, 8X by age 60 and 10X by age 67.

If you suspect your savings may be falling short, it’s time to analyze your situation further to see where you truly stand and make adjustments to help you reach your goals.

Maximize a Roth IRA Now, Avoid Taxes Later

Tax-deferred accounts such as 401(k) plans and traditional IRAs are essential components of any retirement savings plan. Because they are tax-deferred, retirees need to plan for the fact that withdrawals from these plans will be subject to taxes.

A Roth IRA can be an excellent addition to a retirement savings portfolio because it is not a tax-deferred investment. Roth contributions are made with after-tax income, therefore withdrawals of contributions are not taxed. Earnings made by the investments contained in the Roth are also not taxed as long as the account holder is at least 59½ years old and has had the account for five years or longer.

Contributions for Roth IRAs are limited to $6,000 annually, although those aged 50 and older are allowed to contribute up to $7,000. Additionally, income limits apply, so higher earners may not qualify to contribute to a Roth.

Think About Taking Social Security Benefits Later

Most folks can’t wait to reap the rewards from the system they’ve been paying into their whole working lives, and 45% choose to take Social Security benefits as early as they can at age 62. Many don’t realize that this strategy results in a reduction of benefits by as much as 30% compared to waiting until their full retirement age.

On the opposite end of the spectrum, retirees who can delay claiming Social Security past their official retirement age enjoy an increase in benefits of 8% for each year they wait, up to age 70.

Another advantage of waiting to claim Social Security relates to the annual cost of living adjustments. A larger check means a more substantial change, and those larger adjustments continue to compound over time. Many people overlook the benefit that having this hedge against inflation can provide.

Consider Easing Into Retirement by Working Part-time

The transition from working full-time to suddenly having all kinds of time on your hands can be abrupt and disruptive for many people. A part-time job can ease that transition into a more leisurely lifestyle, plus bring in some income to help cover expenses and preserve the retirement nest egg.

Protect what’s yours as you plan for your well-deserved retirement. Discover more about AAA’s financial services and speak to an agent today.