It’s tough to think about retirement when you’re nowhere near that phase in life. You may have concerns that you’ve started too late, you won’t have enough money to retire or that you’ll run out of money before you die.
The earlier you start saving for retirement the better off you’ll be but it’s never too late. What you save now will determine the quality of your life and lifestyle once you do retire. Follow these 9 tips to help boost your retirement savings.
If you haven’t put money aside for retirement start investing as much as you can now. Ideally, you start saving for retirement in your 20’s and let compound interest work its magic but it’s never too late. Even if you’re not in your 20’s or 30’s start as soon as you can and invest as much as you can.
Set a goal and have a plan
One of the first steps to boost your retirement savings is to figure out how much you can contribute toward retirement. Hopefully, by retirement, most of your expenses such as your house and car will be paid down. Ideally, you’ll be able to cover your expenses and maintain your lifestyle throughout retirement. A retirement calculator can help you create a retirement plan. Once you’ve set a retirement goal, create a plan to put it into action. Remember to factor in 2-3% for inflation.
Contribute to a 401K
Contributing to a 401K has tax advantages. It helps you save for retirement and grow your money on a tax-deferred basis. It also lowers your taxable income. Meaning the money you contribute that year does not count toward your gross income. You won’t pay taxes on that money until you withdraw it.
If your employer offers to match your 401K contribution take advantage of the match. Most likely your employer will offer a percentage or dollar amount up to a certain amount.
Be sure to educate yourself on your plan’s vesting schedule. Depending on the plan your employer offers they may have ownership rights to the money they’ve invested if your employment is terminated. This does not affect the money you’ve invested.
Open an IRA
When it comes to opening an IRA you have the choice of a traditional or Roth IRA. If you have earned income and you’re younger than 70 1/2 you can contribute to a traditional IRA. A Roth IRA does not have age restrictions but they do have income restrictions.
The difference between a traditional or Roth IRA is when you’re taxed. You’re not taxed until you withdraw the money in retirement with a traditional IRA. A Roth IRA does not give you a tax break for contributions but the earnings and withdraws are generally tax-free.
If you’re not working and your partner’s income meets the requirements you can open a spousal IRA. A spousal IRA is an individual retirement account that the working spouse can contribute to on behalf of the non-working spouse. The total IRA contributions (for both spouses) must equal or exceed the working spouse’s income.
Automate your savings
Automating your retirement savings will reduce the likelihood of human error and free up your time. Set up automatic contributions to a 401K, IRA or other plans. Scheduling automatic payments will take the uncertainty out of your ability to save while eliminating any temptation you may have to spend.
Pay down debt
If you can save for retirement and pay down debt, I say do both. If you’re struggling to make the minimum payments of your debt with high-interest rates than you may want to focus on paying off your debt so you can later maximize your retirement savings.
Save extra money
If you get unexpected income such as a holiday bonus, salary increase or tax refund consider putting it towards retirement. Sell expensive items sitting around the house that you no longer use. Items such as a boat sitting in the garage or a second car can generate a good amount of cash to invest in your retirement plan. As a bonus, once you sell the car/boat you can apply the money you were paying for insurance toward retirement.
Create a budget and factor in an amount for retirement savings. Spend some time analyzing your budget. See where you can cut back and save more so you can increase your retirement contributions.
One of the reasons many people don’t save for retirement is because they don’t know where to start. Educate yourself by understanding your needs and the opportunities available to you.
Have you found any ways to increase your retirement savings? Leave your comments below.
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