When it comes to planning for your retirement, the earlier you get started the better. The longer your investments are able to earn returns, the more money you will have when you eventually retire. Having said that, it is also never too late to start saving and investing. There is a saying, “better late than never,” and even a small nest egg is better than none at all. On this page we are going to share some tips on planning for your future so you can retire in comfort.
Figure out Your Future Needs
When you’re planning for your retirement, you will need to first figure out how much money you will need when you retire, and then you can start forming a plan. Estimate what your future expenses will be based on current living expenses: mortgage or rent payments, monthly bills and utilities, discretionary income to be set aside for travel and entertainment, and so on. When you know how much money you will need, you can then figure out how much money you must save. You may have other sources of income as well, such as a pension or Social Security, take these into account and you will have a figure for how much money you will need to save for a comfortable retirement.
Contributing to a 401(k)
Contributing to a 401(k) is a great way to save money for retirement. It will give you an immediate tax deduction and allow your savings to grow tax-deferred, meaning that you will not pay taxes on the money until it is withdrawn from your account.
A lot of employers also contribute money to their employee’s 401(k)s, matching up to a certain amount invested. This is free money and you should take advantage of it by investing as much as you can, or at least as much as your employer will match.
IRAs (Individual Retirement Accounts)
Putting money into an IRA is another great way to save for retirement. When it comes to IRAs you will have two options: a traditional IRA or a Roth IRA. Like a 401(k), a traditional IRA will allow your money to grow tax-deferred. A Roth IRA will not allow for deductible contributions but does offer tax-free growth which means that you will not owe any taxes when you make withdrawals later on.
Don’t Touch Your Retirement Savings
Some people are tempted to dip into their retirement savings when they need to spend a large sum of money. If you want to remodel a bathroom, go on a nice trip, or if you are confronted with some unforeseen expense, try to find some other way to pay for these situations. Do not dip into your retirement accounts. Taking money out of retirement accounts will cost you principal and interest, and you may even lose some of your tax benefits. Leave your retirement accounts alone until you actually retire.
Social Security Benefits
Relying 100% on Social Security to take care of you in retirement is not a good idea. On average, the amount of money you will receive will be approximately 40% of what you were earning while you were working. It can be an excellent supplement to the money you are earning, but it is best to avoid fully relying on social security. To calculate how much money you might expect to receive from Social Security, you can visit the Social Security Administration’s website and use their online retirement estimator. For more information, you can also call them at 1-800-772-1213.
Understand Basic Investment Principles
When planning for your retirement, how you save and invest is just as important as how much you save and invest. It’s a good idea to diversify your investments to decrease your overall risk (don’t put all your eggs in one basket). You will want to have a good portion of your savings in investments that are considered safe, but “safe investments” are often low-yielding investments, and a small percentage return can be largely negated by inflation. Therefore, you may want to invest some money into slightly higher risk, but also higher-yielding investments.
Consult with the Experts
The tips outlined above should be helpful for most people, but when you are planning for your retirement, you should consult an expert to analyze your particular situation. Talk to a financial planner, have someone sit down with you and look at your income and your goals for your retirement. Having an expert that can tailor a plan for you specifically can mean the difference between struggling later on or retiring in comfort.