Most likely you have other concerns that are more immediate, such as credit card debt, car loans, and student loans. And your focus might be more on raising your children and purchasing a home instead of retirement planning if you are in your 40s or 30s. However, the sooner you can start saving for your retirement regularly, the more time it will give your money to increase (and just a small amount of extra can sometimes make a significant difference).
The following are 10 useful tips to help you begin planning and saving for your retirement.
Just get started
When it comes to retirement savings, the most important tip is to get started saving for your retirement as soon as possible. The most effective and first step that you need to take is to establish the habit of placing money into your retirement account every pay period.
It is worthwhile to invest even small amounts of money. For example, say you put $75 per month into your retirement account starting when you were 25 years old and ending when you were 65. Over 40 years that would add up to $36,000 ($75 x 12 months per year x 40 years). If you assume a moderate return of 8%, you could easily turn the $36,000 into at least $260,-000 when you invest the money into a retirement plan such as a 401(k) plan account or individual retirement account (IRA).
Your money is working for you when you can turn $36,000 into $260,000.
Get automatic payments set up for your retirement account
if automatic payroll deductions are offered by your employer, take full advantage of this. Have a certain percentage of your pay set aside so that it goes directly into your retirement savings account before a deposit is made to your checking account. This will allow you to avoid any temptations of using the money for other things besides retirement savings.
However, it isn’t a problem if payroll deductions are not offered by your employer. An automatic transfer can still be set up from your savings or checking account into your retirement account.
Find out if your company offers an employer match
A 401(k) retirement plan is offered by many companies to promote saving. Many employers will partially match the amount that you invest for retirement. For example, if 6% of your total payment is invested and your employer matches $.50 on each dollar, an additional3% will be put into your account. So instead of 6% being added, it will be 9% instead.
Even if money is tight, you should try to contribute the matching amount at least to get the free money being offered by your employer.
As you earn more money, save more
As your career continues to progress you will most likely receive raises and promotions. Every time your income goes up, be sure to increase your retirement contribution. If your new contribution amount is in proportion with our raise, it will allow you to not only enjoy the extra income but extra retirement savings as well.
Defer taxes so you can make bigger contributions now
When you choose to use a tax-deferred retirement account, like a 401(k) or IRA, it will allow you to postpone paying taxes on your earnings and contributions until the money is withdrawn when you retire. A bigger untaxed contribution means you will have a larger sum of money that can continue to grow for several decades. This can make a significant difference to your retirement savings.
On the other hand, Roth IRAs are taxed upfront, so any withdrawals made in retirement are tax-free. This might be a better option, depending on your situation. You might need some professional advice to make this decision. This leads us to our next tip…
Consult with a trustworthy expert for advice
When it comes to your retirement account, It isn’t necessary to know all the details about investing to select the best options. If a retirement savings plan is offered by your employer it may give you access to advisors from the plan who can provide you with guidance on how to best save for retirement.
Before you open a retirement account, first ask for recommendations from people you trust. Search for a fee-based advisor who is willing to spend the time becoming familiar with your investment outlook and your retirement goals.
Make certain you will be able to sleep well at night
The higher the potential reward, the bigger the potential risk is. A bond can be purchased for funding a new bride in the town where you live (a fairly safe investment that will likely bring modest gains) or you could invest in a Croatian startup tech company (a much riskier investment with a much higher potential return).
It is essential for both your advisor and you to have a thorough understanding of the level of risk that you are comfortable taking. That will prevent you from repeatedly entering and leaving the stock market (which for retirement accounts has penalties associated with them). This will also help you sleep soundly no matter what reports you hear on the nightly news.
Understand that there is also risk associated with playing it too safe
Inflation occurs over time. So whether you are purchasing a new car, mobile phone, or shirt, most likely in 10 years (or a lot sooner) the same product is going to be more expensive.
Some low-risk investments might not be able to keep up over time with inflation. So although your money might be stable, you are losing money since in the future it will not buy as much.
Keep in mind there is safety in numbers
Mutual funds are used by many investors for funding their retirement savings accounts. A mutual fund manager purchases shares of several different companies and then places them into a single fund. Shares of this fund are then sold. So instead of purchasing shares from one company, you will buy partial shares from some different companies.
Your returns are kept high when this strategy is used since you are investing in multiple stocks, which keeps your risk low since you are not relying on just one company to be successful.
Think long term
The stock market will inevitably fluctuate. Things such as natural events, breakthrough technologies, and political anxiety can cause prices to rise and fall. When it comes to your retirement planning, keep in mind that the long game is what you are playing. Historically the stock market has been able to bounce back following turmoil. Other than the Great Depression, since 1900, the stock market in the US has increased each decade.
Keep in mind that investing for your retirement is not only about money being set aside to use later on. It is also about making sure your money continues to grow. No matter what stage your career is at or how old you are, it is time for you to consult with a financial advisor to come up with the best long-term strategy for you.