While most people know that they need to save a substantial portion of their income for a comfortable post-retirement life, not everyone is able to save the required amount they’ll need once they stop working. Like millions of others, you may not have made substantial progress towards building a healthy nest egg, but it’s never too late to step up and plan your retirement regardless of how little you’ve saved until now or how many working years you have left.
The following tips will help you increase your savings and plan for a comfortable retired life with your family.
- Set a goal. While you can start saving a random sum for your retirement fund, it would be wiser to calculate the total amount you’ll need to save in the coming years, taking into account your current age, current income, expected retirement age and lifestyle. Ideally, you should aim for a nest egg that will provide at least 75 percent of your gross annual income (from salary or business). Putting your retirement goal down in numbers will help you determine your monthly contributions starting now.
- Start early. According to experts, the earlier you start a retirement fund, the better returns you stand to gain over the years. When you start investing and saving in your late 20s, you’ll have plenty of time to allow your investments to grow and generate additional savings in the form of compound interest. In fact, you can set up an individual retirement account (IRA) as soon as you start your first job, provided you’ve reached the legal working age limit in your state.
- Contribute more to your retirement accounts. By maximizing the yearly contributions to your retirement accounts, you can avoid penalties (levied by some financial institutions if you fail to make the minimum annual contribution) and save more for your golden years. If you make a windfall, treat yourself with a little something and put the remaining money in savings.
- It’s never too late. If you’re in your 40s or 50s, don’t feel that you have missed the bus and it’s too late to build a healthy retirement fund. You can still open an individual retirement account (IRA) and start investing in assets that will get you a handsome return in the coming years. The article “401K vs IRA” from Mink Wealth says that those over the age of 50 are able to make larger annual contributions to a 401K or an IRA. Moreover, there are plenty of less risky investment options for those nearing retirement age. It’s never too late to start building an investment portfolio that will have your back once you stop working full time.
- Automate your savings. Automating monthly contributions is one of the best ways to ensure consistent savings toward your nest egg. As your IRA savings are invested in assets such as stocks, ETFs and even real estate, you can also choose to automate your investment selection and let your bank do the needful. Automating your savings and investments will help maximize your earnings, ensure regular savings, and also leave you with one less chore every month.
- Open an IRA even if you have a 401k. You can open an IRA even if you have a 401K account with your employer. If you’re eligible and can manage to increase your yearly contributions, having an IRA can bring you significant tax benefits and reduce your total taxable income for the year. Based on your total income, age and nature of employment, you can open a traditional or a Roth IRA. The IRA and 401k each have their own distinct features, advantages, and limitations. If you’re not sure which type of retirement account would best serve your needs, speak with an experienced financial adviser for professional guidance.
- Control your spending. If you wish to contribute more towards your retirement fund but don’t see your income increase in the near future, take a long and hard look at your current expenses and see if you can curtail some of the nonessential expenditure without compromising your lifestyle. This is particularly important when you’re nearing retirement. While you may not necessarily put such savings into a retirement account, you can use the extra money to pay off loans and reduce your overall debt. Disciplined and mindful spending will help you gain greater control over your finances and save more for later.
- Review your current debt. Learn how you can pay off your debt more quickly and save on total interest payable to the lenders. If you have a car loan, for instance, find out if the provider will lower the interest rate or if you can transfer your loan to another provider offering a lower rate. Consider if loan consolidation will help ease the burden. Curb your credit card spending and pay your balance in time to avoid penalties. Learning to manage your existing debt will leave you with more confidence—and more money—to plan your golden years.
- Delay receiving social security benefits. Did you know that the longer you wait to start receiving social security retirement benefits, the more you stand to receive in the later years? Social security retirement payments start at age 62, but if you’re still earning a good income from a job or business, you can choose to delay your social security benefit until you’re 70. This will significantly increase your monthly payouts and may also increase the survivor benefits for your partner.
- Don’t touch your nest egg. Even though you may be a savvy retirement planner who started early to build a substantial old-age fund, it won’t be of many benefits if you have a tendency to withdraw from your retirement savings to meet contingencies, which are a part of life. Unless there is absolutely no other option, don’t touch your retirement money until you actually retire. Plan your income and expenses so that you can put away a small amount each month for a rainy day.