Whether you’re in your 20s, 30s, 40s, or 50s, the perfect time to start saving for retirement is as soon as possible. Now if you are currently drowning in debt (how I was a few years ago) or if you don’t have a good budget strategy instead, you may need to go through a few steps first. It’s hard to think ahead when you’re struggling to make ends meet. Believe me, I know from experience!
But once you have a better handle on your finances, it’s good to start looking to the future. If you feel like you are behind the curve when it comes to building an egg nest, you are not alone. About 25% of non-retirees have no money saved for retirement. according to the Federal Reserve.
Fortunately, it is never too late to start saving for the future. Here are four smart tips you can use to plan for retirement as soon as you are ready.
1. Incorporate retirement savings into your budget.
I firmly believe that your budget is the most important tool you can use on your financial journey. It helps you figure out what is most important to you and gives you a roadmap to reach your goals.
Without a budget, you will be constantly frustrated with money like I used to feel in the past. To make matters worse, you probably won’t be able to pay for the things that matter most to you (like saving for retirement, buy a house, or save for your children’s education).
When you’re ready to start planning for retirement, it’s critical to include this goal in your budget. For example, you may want to save 10% of your income initially for the future. Calculate the amount and add it to your budget as a monthly expense. If you don’t include retirement savings in your monthly financial plans, it probably never will.
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Want to further increase the amount you are saving for retirement? You can use some cost reduction strategies to free up more cash in your budget. Anyone who knows me knows that I am a huge fan of saving money. Spending less on things you don’t really need gives you the power to reach your financial goals sooner. check she is ready with 30 of my favorite out-of-the-box ways to save money.
2) Take advantage of your employer’s retirement savings plan.
A 401 (k), if offered by your employer, is one of the best places to start building your retirement savings. These tax-advantaged savings plans allow you to put retirement money on top of your paycheck (also known as gross income). You don’t pay taxes until you withdraw the funds in the future.
The federal government limits the amount you can contribute to your 401 (k) each year. For 2020, the contribution limit for employees is $ 19,500.
Many 401 (k) plans include something known as an employer matching contribution. If your employer offers this benefit, they will put a certain amount of money into your 401 (k) fund based on the amount you invest. For example, an employer could:
- Contribute $ 0.50 to your retirement savings plan for every dollar you invest, up to 6% of your salary.
- Contribute a dollar to your retirement savings plan for every dollar you invest, up to 3% of your salary.
An employer contribution is free money that can help your retirement savings grow faster. So if you have access to this benefit and can afford to take home a little less cash on each paycheck, you should seriously consider taking advantage of it.
3) Consider adding an IRA.
A 401 (k), especially one that offers an employer supplement, is a great way to help prepare for retirement. But there is more than one way to save for your golden years. An IRA could also be a useful addition to your retirement savings plan.
- Traditional IRA: TO Traditional IRA it is probably the most popular type of retirement account. With traditional IRAs, you can deposit tax-free contributions now and pay taxes later when you make withdrawals.
- Roth IRA: TO Roth IRA it is another type of retirement account. With Roth IRAs, you pay taxes on your contributions up front. However, you will not pay taxes again when you withdraw funds in the future.
By 2020, the IRS will allow you to contribute up to $ 6,000 to all of your traditional and Roth IRAs combined. If you are over 50, the maximum contribution amount increases to $ 7,000.
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Already have a 401 (k) or an IRA? TO free Bloom analysis can help you see how your investment accounts compare.
4) Make your savings automatic.
With any savings goal, be it for retirement or otherwise, setting your savings on autopilot can help. Even non-retirement savings can be easier to maintain if the money comes directly from your bank account each month.
CIT Bank offers an automated savings option with your Savings Builder Account – plus a higher interest rate on your balance than you could earn elsewhere.
With a 401 (k), you can schedule an automatic draft of a specific percentage of each paycheck. The withdrawn funds go directly to your retirement contributions. Most IRA plans also allow you to schedule automatic contributions from your bank account.
Automated savings can help you make your specific financial goals a priority. Also, it’s more difficult to accidentally spend money on something else if the funds have already left your paycheck or bank account.
It’s okay to start small when it comes to retirement savings if that’s all you can afford right now. You can always increase your retirement savings efforts in the future when your budget allows. But you shouldn’t wait until you’ve reached all of your other financial goals (like saving for your children’s college fund or paying off your mortgage) before you start.
You should also aim for eliminate certain types of debt before retirement as well as. Being in debt can make it difficult to save for retirement. Debt can also make your budget much tighter once you stop working full time.
Finally, remember that it is okay to ask for professional help if you need it. A fee-only Certified Financial Planner (CFP) can answer specific questions you have about your finances and help you create a personalized retirement plan to meet your future goals.