You can save for your future at any time, whether you have just started working or you’re almost retiring. Planning for retirement as early as you can is important. The earlier you begin to save, the better, due to compound interest.
There’s never a bad time to start focusing on increasing your retirement savings, so never think it’s too late. Here are the top 3 tips that will help you achieve this.
1. Make 401k Contributions
There are limits to how much you can contribute to your 401k, so check these before you begin. It is recommended that you contribute enough to match your employer’s contributions. However, an employer may not offer a match, or you might want to contribute more than a match.
It is certainly a commitment to make your own contributions, so ensure that you calculate how much you want when you retire. This depends on the lifestyle you plan to have, the income you want to replace, and whether or not you want to rely on Social Security. The number is completely personal and varies from person to person, so there is no right or wrong answer.
You can begin at a lower contribution and then start working your way. If you want to aim to match the contribution, you can do this in increments. You might find it easier this way as it isn’t a large chunk of money disappearing each month.
2. Open An IRA Account
You might already be contributing to your 401k, or you want another option to save, consider setting up an individual retirement account (IRA). With IRAs, you invest the money into this account which can be invested into stocks, bonds, and other assets.
The growth of the account depends on how much you invest, and contribute. The most common types are traditional, Roth, SEP, and SIMPLE. There are contribution limits, so ensure you check what these are. As stated above, you should already be aware of how much you want by the time you retire. This will help inform you as to what kind of account is right for you.
There are also rules in place regarding withdrawal. You could face a penalty and a tax bill if you try to withdraw the money early unless you are not eligible for an exception. Contributions to traditional IRA accounts are usually tax-deductible. Withdrawing during retirement is, however, taxable in the way income is. If you are married and either you or your partner has a workplace retirement plan, the amount of your deductible contribution is reduced or removed altogether, once you hit a specific income. You are still able to make contributions, but they are not tax-deductible. If you or your partner does not have retirement plans, you can deduct your IRA contribution no matter your income.
This one is very obvious, but it is probably one of the most important. Without setting a goal and working towards it, you will not be able to carry out the contributions mentioned above. Doing the above will help you reach your retirement goals, however, you need the money to do so.
If you already have a budget in place, review it and see where you can make cuts or changes. You might want to re-examine your budget on a monthly basis. This will help keep you on track and easily make amendments if you make mistakes.
If you don’t have any type of budget in place, it is best to start as soon as possible. A budget will help keep you focused and allow you to easily see where your money is going. Oftentimes, we spend money in a way that seems to disappear without a trace. A budget will help give you the wake-up call you might need.
Make cuts where necessary, and begin using this money to place in your 401k or IRA. Depending on how much your goal is, the saving might not seem so dramatic. Often we spend money on things we don’t care about due to thoughtlessness. For example, think about how much money you could save if you didn’t buy lunch every day. Everyone’s circumstances and lifestyles are different, but reigning in your spending now will give you a much more comfortable future.
Use these three tips to help you increase your retirement savings. It can often be confusing and seem expensive now when saving for the future, especially as you may not see the fruits of your labor for a long time to come. Reminding yourself, on the other hand, of the future and the life you want to live, will give you the motivation to save, and invest, wisely.