When it comes to retirement, the earlier you plan and save, the better. Because of compound interest and tax deferrals, you can benefit more the earlier you start saving for retirement. The below strategies will help:
1.Think about the kind of retirement you want. Will you want to live differently when you retire? Start visualizing the type of lifestyle you want to live when you retire so you can tailor your savings goals to that lifestyle.
- How old do you want to be when you retire?
- Will you still work part time?
- Where will you live? Do you want to live domestically or internationally?
- Will you be renting a house, or will you own your house? What will your monthly costs be?
- Will you still work part time?
- Where will you live? Do you want to live domestically or internationally?
- Will you be renting a house, or will you own your house? What will your monthly costs be?
2. Set a goal. Take time to carefully consider retirement expenses while factoring in inflation. Will you have other expenses that you might not have right now (such as children’s expenses)?
- How much do you want to have when you retire? - Will you be traveling when you retire?
- Hypothetical examples suggest that even a 25-year-old who invests $75 per month would accumulate more assets by 65-years-old compared to a 35-year-old who invests $100 per month.
3. Automate your savings to a retirement plan. Take advantage of tax deferrals to a retirement account. Set up automatic payments to your Individual Retirement Account (IRA) or 401(k). This way, the money gets deposited into your retirement savings plan before you have to think about it.
- 401(k)s have a high contribution limit ($23,000 if under age 50 & $30,500 if you are age 50 or over – 2024 limits), and sometimes employers are willing to match your contributions (this is FREE money).
- If you are under 50, you can contribute up to $7,000 to an IRA. If you are 50 or older, you can contribute up to $8,000 to an IRA (2024 limits).
- Money contributed to a 401k or Traditional IRA may be deductible on your taxes that year. Then, when you withdraw money from that account in retirement, you pay taxes then.
- Money contributed to a 401k or Traditional IRA may be deductible on your taxes that year. Then, when you withdraw money from that account in retirement, you pay taxes then.
- Money contributed to Roth IRA or Roth 401k are not deductible on your taxes that year. However, withdrawals you make from that account when in retirement are not taxed.
4. Diversify your savings. Don’t put all your eggs in one basket! Your retirement account is just one piece of the puzzle. Consider investing in other assets, such as real estate, taxable investment account or a business.
5. Take advantage of employer matching. If your employer matches your retirement contributions, take advantage of that! Deposit the maximum amount that your employer matches. Then invest the remaining amount in a Roth IRA to get your total up to 15% of your gross income.
6. Continually reduce your debt. Pay off your credit cards every month, if you use them. When possible, accelerate your mortgage payments after eliminating all other debt and maximizing retirement savings.
7. Start saving today. Most (if not all) articles you read about retirement will encourage you to start saving today. The reason being is over time you can earn money from your savings via compound interest.
- Compound interest is the interest you earn on interest. It comes from reinvesting the interest you earn. It works in your favor.- Hypothetical examples suggest that even a 25-year-old who invests $75 per month would accumulate more assets by 65-years-old compared to a 35-year-old who invests $100 per month.
- Put as much as you can away now so that you can reap the reward later.
Some financial experts recommend saving 15% of your pre-tax income towards tax-advantage retirement accounts. Saving for your ideal lifestyle when you retire is a marathon, not a sprint. When you build your wealth over time, you don’t have to worry about tackling everything all at once. Remember that over time, your retirement account will build! Let’s go, you’ve got this...
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