![]() ![]() For a few months, track how you spend your money. The first step toward a post-retirement budget is a review of what you spend now. If you do, the switch from saving to spending in retirement can be easy.īut, in order to make that transition, you need a budget. Like a fiduciary choir, financial advisors all sing the same refrain: Start young save and invest regularly to meet your financial goals. What really matters is: How will you spend your money once you retire? Prepare a Post-Retirement Budget While data supporting EBRI’s study is helpful, it turns out that the highlight of the Consumer Expenditure Survey results is a detailed look at how the things we spend our money on change as we grow older.Īs interesting as that is, it’s just a general look at how older Americans are managing their money. In “ A closer look at spending patterns of older Americans,” the author analyzed data from the 2014 Consumer Expenditure Survey, and she also found a progressive drop in spending as age increases. Department of Labor seems to support the research from EBRI. (Although, nearly 46 percent of households actually spend more in the first two years of retirement.)Īnalysis from the Bureau of Labor Statistics in the U.S. Household spending generally drops at the beginning of retirement - by 5.5 percent in the first two years, and by 12.5 percent in the third and fourth years. Others, however, are significant and worth examining ahead of time… like how much you’ll be spending in retirement each month or each year.Īn Employee Benefit Research Institute (EBRI) study offers some good news for prospective retirees. Some changes are small, like sleeping in or shopping during regular business hours. Just like starting your first job, getting married or having kids, retirement will change your life. How to Calculate Simple and Compound Interest The sooner you can start saving, the more time your money has to grow. If you’re thinking about boosting your personal savings for retirement, look for accounts that use compounding. For example, the New York State Deferred Compensation Plan (NYSDCP) is the 457(b) plan created for New York State employees and employees of other participating public employers in New York. In this example, that’s just a difference of $2.50, but, over time, compounding can mean a difference of hundreds or thousands of dollars. ![]() So, you would still have that $1,050 at the end of the first year, but by the end of the second year you’d have $1,102.50 in your account instead of $1,100. If you earn the same 5 percent, with compounding, it’s applied to the full balance of your account. With compounding, your initial investment plus your earnings are reinvested. With simple interest, the interest you earn every year would still be based on the principal amount of $1,000 - no compounding. That’s $50 more than the principal amount you started with. At the end of one year, you’d have $1,050. If the bank paid 5 percent annual interest on that deposit, you’d receive five cents for every dollar in your savings account each year. ![]() Let’s say you opened a savings account and deposit $1,000 in January. With simple interest, the amount of interest you earn is based on the original (or principal) amount of the deposit. In banking, simple interest is a certain percentage you are paid on the money you put in your account. This is a little different from earning simple interest. That means your money increases in value by earning returns on both the original amount and accumulated profits. When you invest in a retirement savings plan such as an IRA or 457(b), you earn a return on your investment, and your returns are compounded. The sooner you do that, the better, because it’s important to start saving and investing early so your money has time to grow. But if you want to improve your chances of a financially secure retirement, you should have a retirement savings plan. You know you can count on your pension income in retirement. Financial security doesn’t just happen it takes planning … and time. ![]()
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