The thought of getting old is something that none of us want to think about, and although most of us look forward to the time we can retire, planning for retirement by saving is not something that most of us likewise look forward to. The reality is that the more you save early in the process, the happier you will be when you can put your work hours behind you. And if you save wisely, retirement might be something you can do earlier than you think. These are the key points of a healthy retirement savings plan.
It is hard to imagine, but it is NEVER too early to start planning for retirement. Sure, your main focus as a twenty-year-old might be to get a fancy car – but if you start young and put just a little bit away every month, investing well can make sure you not only have a fancy car but that you have the time away from work at a young age to enjoy it. When it comes to retirement strategies, the earlier you get started, the better!
Maximize Your 401(k)
As a young person, if you contribute to your 401(k) plan it is money that you won’t miss or probably even notice, but the more you put in, the more you will get out of it. 401(k) plans usually allow you to save pre-tax money. That means it isn’t subject to taxes. The money is withdrawn from your paycheck before you even have a chance to miss it. You can invest in your savings plan without noticing. Even if your plan is a Roth 401(k), consider your tax bracket after retirement to consider whether it is still a good idea or if another savings scheme might be better.
Always Match Your Employer
Employers who will match your contribution are a huge advantage. If your employer is willing to put in as much as you do, then it is always advantageous to contribute as much as allowed or as much as you can afford – it’s like free money!
Start An IRA
An IRA is an individual retirement account that it will help to save for your retirement. IRAs come in two different types: the Roth IRA and the traditional IRA. Traditionally speaking, the right one depends on how much you make and how much your spouse can add to the retirement plan if you are married.
Traditional IRAs might be tax-deductible, which means that you can accumulate them until you start withdrawing at retirement age. However, if you can avoid the phased-out modified adjusted gross salary limits, a Roth might be a wiser choice.
You can contribute to a Roth IRA after taxes are taken out, but after the age of 59.5, your distributions, which include earnings, are income tax-free federally speaking – and maybe state, too, as long as withholding periods are satisfied.
Maximize Catch-Up Contributions 50+
Your yearly savings in IRAs are limited. As you near 50, your limits are extended and you can make catch-up contributions to 401(k)s and IRAs. So even if you didn’t hop on the bandwagon early, there is always time to play catch-up.
Make It Automatic
If you don’t see it, you don’t miss it. The best way to save for retirement is to take your contribution right off the top so that you don’t even notice that it was there to begin with. Automating your contributions is the best way to never see it. You can budget without it and never feel robbed!
We all get busy and pay more than we should because we aren’t paying attention. If you continually watch rates for your common bills like insurance and house payments, you can contribute the savings to savings and keep the wealth accumulating.
If you have extra money, don’t find ways to spend it – save it. When you get a bonus or a raise, live off your previous salary and save the extra. Always resolve to spend less and save more. If you put a little restraint on yourself and your spending today, you can live the rest of your life the way that you want.
Delay Social Security if You Can!
If you aren’t miserable at your job, you actually still find satisfaction, and you can work around what you want to do, why retire? For every year that you put social security off past full retirement age up to age 70, you get more for the future. You can retire at 62 and receive benefits, but if you keep working, it can add up quickly and benefit you and your spouse, too. Taking social security before reaching full retirement age, means reduced benefits.
Although most of us don’t want to think about getting old, it is something that we can’t avoid. Instead of seeing old age in a negative light, plan for a healthy retirement and make your golden years truly golden. The sooner you start planning for retirement, the sooner you get to enjoy it. At Baldwin CPA, we help our clients realize their goals, whatever they may be, and at any age. Contact us today to start planning for your retirement adventures.