The sooner you begin the process, the easier it will be. (iStock)
Preparing for retirement can be challenging because the amount of money you need to leave the workforce depends on your ability to save and the kind of life you want to live when you're retired.
That said, Fidelity Investments developed a rule of thumb to help people plan. It recommends having eight times your income socked away by age 60. Having that much cash in savings will make it possible to be able to retire by age 67, according to the brokerage firm.
3 ways to prepare for retirement by age 60
If you’ve done the math, that figure can be daunting. But here are some steps you can take to make more space for retirement savings and to increase your return on investment.
- Build an emergency fund using a high yield savings account
- Pay off debt
- Take advantage of tax-sheltered retirement accounts
1. Build an emergency fund using a high-yield savings account
The most fundamental thing you can do to protect your future is to build an emergency fund. Personal finance experts recommend setting aside up to three to six months’ worth of basic expenses for a rainy day.
This process can take several years for some, but using a high-yield savings account can help you achieve your goal a little faster. These accounts offer much better APYs than a traditional savings account.
Once you have enough money stashed away, you’ll be better prepared when an emergency happens, such as home or car repairs, a job loss or a short-term disability. It’ll also help you avoid high-interest debt that could make it difficult to save for retirement. You can explore high-yield savings options with Credible.
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2. Pay off debt
A financial emergency can devastate your personal finance. High-interest debt, on the other hand, can act more like an insidious threat that takes away from your capacity to save for your future over the course of several years.
If you have good credit, a balance transfer credit card can be an excellent way to get rid of your credit card balances. You can also compare balance transfer cards through an online marketplace like Credible.
These cards offer an introductory 0% APR for up to 18 months or even more on debt transferred from another credit card. Depending on your balance and current interest rate, you could end up eliminating your debt faster and saving hundreds of dollars in the process.
Another option to consider is a personal loan. You can use personal loan funds for just about anything, but debt consolidation is one of the most popular uses. The average rate on a two-year personal loan is 9.34%, according to the Federal Reserve, compared with 16.43% for credit cards.
What’s more, personal loans give you a set repayment term, so you won’t risk getting caught in the trap of making just your minimum payment and extending the amount of time you’re in debt for several years.
Make the best choice for your unique situation by visiting a site like Credible to explore your personal loan options and to locate the best personal loan rates.
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3. Take advantage of tax-sheltered retirement accounts
Preparing for emergencies and paying off debt will help free up cash flow in your budget that you can put toward your retirement. But if you’re not using the right strategy for retirement savings, you could leave money on the table.
If you have an employer-sponsored 401(k) account, for instance, make sure you’re contributing enough to get the maximum contribution match from your employer—that’s effectively an immediate return on your investment of up to 100%.
If you’ve maxed out your 401(k) contribution or you want more control over your investments, consider a traditional or Roth IRA. Both are taxed differently, so take some time to research both options and consider consulting with a tax professional or financial advisor to find the best fit.
Finally, if you have a high-deductible health plan, think about opening and contributing to a Health Savings Account. An HSA allows you to save money for eligible medical expenses on a tax-free basis, and health care is among the most expensive aspects of retirement.
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Other financial moves to make before retirement
There are several other things you can do with personal finance to put yourself in a better position to save for retirement. For starters, creating and sticking to a budget can be a significant difference. Understanding where your money is going every month is key to helping you understand where you can cut back to make more space for your financial goals.
Also, make sure you have enough insurance coverage, including life, disability, health, auto and more. Getting in a situation where you need insurance and don’t have enough can stop your retirement plan in its tracks.
(As with a car purchase, buying insurance can be done online just as easily. Check out Credible's auto insurance options now.)
Finally, try to avoid taking on high-interest debt. This includes racking up balances on a credit card and maintaining a good FICO score, so you can always qualify for favorable credit terms.
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