10 Retirement Tips & Tricks In Time For 401(k) Day

Everyone has a different idea of what their retirement will look like, but one thing's for sure: you don't dream of spending it with no means to fund day-to-day expenses. Unfortunately, there is still a lot of information about retirement that many do not take advantage of, and almost 30% of Americans are not financially ready for retirement. This resulted in the creation of the National 401(k) Day in 1996, now celebrated every year on the Friday following Labor Day Monday. It's a metaphor for how Americans start as employees and end with retirement.

Almost a third of Americans work for an employer that offers a 401(k) plan but don't take advantage of it. Even if you are one of the 21% of Americans who don't work for an employer offering 401(k), there are ways to prepare for retirement.

Let's go through them:

1. Develop The Habit Of Saving

Saving is not a task you get to tick off one day after putting it off for most of your life. To be ready for retirement, you must start to develop the habit of saving early and let the power of compounding interests do wonders for you.

Aim for a smaller amount if the budget is tight right now, then gradually increase the amount you save over time. One reason to start saving now is that inflation is a fact of life. The money you have today will not have the same value in a couple of years, but if you save and invest, that becomes a hedge against inflation. Always assume prices will go up, and be ready for it.

2. Deal With Your Debt Immediately

It is important to pay your debt while you have a steady stream of income and while you have the strength and capacity to work. Credit card debt, home mortgage, car mortgage and other types of debt accrue interest over time. Simply paying the bare minimum means you are giving your money away as payment for astronomical interest rates. That's money you could have added to your savings instead.

Make it a habit to pay credit card debt in full at the end of every month, and see if you can refinance other debt to get a smaller interest rate. Do remember that there is good and bad debt – tackle the bad kind of debt first. Good debt should add to your credit score, while bad debt may be taking away from it.

3. Plan Your Retirement Lifestyle

With your savings and debt in mind, see what kind of retirement lifestyle it can afford you. This is a good practice so that you will see how much you currently spend and save and what you can ideally improve upon as you retire.

Retirement comes with more expenses. Health premiums increase with your age, and if you own your current house, it will also require maintenance over time. You might need renovations to make it elderly-friendly. You might need a caregiver. Your diet may need adjustments as well.

One good practice to do now is to imagine your life in retirement and calculate how much that life will cost you. Then, work backward and see how much you have to save every month if you want to reach that goal.

4. Create A Budget You Can Stick To

When you budget, do so with a realistic look at your finances. The goal is not for you to lose all the purchases or activities you genuinely enjoy. It's more important you know where you can trim off excess spending without impacting your day-to-day living. Payment for a subscription that you don't use regularly could be added to your emergency fund.

A budget can also give you a look into your priorities when you retire. If you love traveling now, perhaps you will continue to do so – and you may even want to double down – when you retire. That means accounting for travel expenses when you plan your retirement lifestyle and save for it.

5. Learn What Retirement Packages Your Employer Offers

Another important thing to do while you're employed is to set up a retirement plan with your employer. Almost 80% of American employers have a retirement plan, but only 41% take advantage of it. Start by asking them questions about what kind of plan they offer and how much they can contribute to it. You can then match what they contribute. Even if it's a simplified plan, it's better than nothing.

Some employers have a traditional pension plan, while others offer a retirement savings plan such as the 401(k) plan. Max out your contributions if you can. Having this account will lower your taxes, and the interest in this account will compound over time. You can start taking from your 401(k) contributions at the age of 59 and a half but consider keeping the money in your account for as long as possible.

Aside from your 401(k) account, set up an individual retirement account (IRA). Here, you can put up to $6,000 a year or more when you reach your 50s. This account has tax advantages depending on whether you have a traditional or a Roth IRA.

6. Know Your Social Security Benefits

Social Security retirement benefits play a huge role in the retirement plan of many Americans. On average, it replaces 40% of a retiree's pre-retirement income. The Social Security Administration has made it easy to estimate your benefits using the retirement calculator on its website. You may also get in touch at 1-800-772-1213.

You can start collecting your Social Security benefits when you reach the age of 62, but consider the pros and cons of collecting benefits early before you decide.

7. Prioritize Your Health And Well-Being

You may not be spending much on healthcare while at peak health, but retirement age comes with a few financial setbacks, such as more clinical tests and doctor's visits. Emergency treatments may also cost a huge amount if you are not ready.

Similar to savings, you can act now and invest in your health and well-being. Low-impact exercises done regularly can keep you physically fit well into your retirement age.

In line with starting a healthier lifestyle, you'll also want to prepare a health insurance strategy that will consider your age at the time of retirement. There are retirement healthcare plans, such as Medicare, which you can enroll in at 65. It may be a couple of years away, but setting a reminder as early as now will be one less thing to worry about when you are near the age.

You can also set up a health savings account (HSA) and maximize your contributions while you can. Take note that once you enroll in Medicare, you can no longer contribute to your HSA. However, you can receive tax-free distributions for qualified medical expenses.

8. Set Up An Emergency Fund

It's all well and good if things go according to plan and you have the option to retire when you are ready, but because life is unpredictable, it is important to prepare for the unknown. An unplanned retirement can be better dealt with if you have an emergency fund set up to keep you afloat until your Medicare kicks in for healthcare or until you can withdraw from your retirement savings plans.

An emergency fund should cover several months of living expenses. Try not to dip into it for discretionary spending before retirement. Adopt an "out of sight, out of mind" approach if you feel you might be tempted. Set up automatic transfers from your payroll account to your emergency fund so that you won't see the money and treat it as available funds to spend.

9. Learn To Invest And Diversify

Saving up is crucial when preparing for retirement, but it is not the only strategy. As they say, don't put your eggs in one basket. A more rewarding way to grow your money is through investing – and when you start investing, make sure you diversify.

If you are not new to the world of investing, now is a great time to reassess your risk tolerance after a crisis. You may have been an aggressive investor during the pandemic, but if your investments did not pay off, rethink your strategy. As you near retirement age, you want less risk and lower chances of you losing money as the market dips. A healthy mix of safe and aggressive investments is perfect, with aggressive investments gradually making up a smaller portion of your investment portfolio as you near retirement.

10. Add Another Source Of Income

At this point, you might realize you have a long way to go to be ready for your retirement expenses. If you need an extra push to get to your 401(k) savings and investment goals before you turn 60, consider adding another source of income now. The extra money from side hustles during your free time can be added to your savings or help you clear out debt faster. Consulting gigs that do not take more than a few hours per week could help with monthly mortgage payments.

While many retirees these days are still taking on part-time in their golden age, it's better to prepare for the possibility that you will not be able to do it. Besides, not having to take on work in your retirement years will help you realize that retirement life you have envisioned for yourself.