Retirement is a time for you to live life to the fullest. You’re no longer tied down to a 9 to 5 job and have to take care of your children, which means you have all the freedom to pursue your passions and dreams. However, one of the tallest barriers retirees face is money. Once you retire, you no longer receive that paycheck you’re used to. Sure, you’ll still collect your Social Security and pension payments, but this might not be enough to get by comfortably. This is why you need to know how to best save for retirement.
Remember, it’s never too late to begin saving. Sure, the earlier the better, but even if you’re in your 40s or 50s, you still have time to set aside some money for your golden years. Below, we’ll offer some tips on how to save for retirement, so that you can do what you love most, whether it be traveling the globe or spending your days at the country club.
Open up a retirement account
Retirement accounts are one of the easiest ways to save for retirement. The average retirement income is roughly $73,645. However, this number is skewed by retirees with massive incomes. Rather, it’s found that half of all Americans aged 65 and older have incomes that are less than $24,224 a year. If this doesn’t sound like enough to get by, you’re probably right. In retirement, you still have bills to pay, groceries to buy, and leisure activities that cost money. To maintain the quality of life you’re used to, open up an individual retirement account, such as a traditional IRA or Roth IRA.
- Traditional IRA: With a traditional IRA, you can contribute $6,000 per year, or $7,000 if you’re aged 50 or older. With this retirement account, you can deduct your contributions from your federal income taxes, which allows your money to grow tax-deferred. Only when you withdraw in retirement will your money be taxed. You can withdraw funds penalty-free when you reach the age of 59 ½.
- Roth IRA: A Roth IRA is similar to a traditional IRA in that you can contribute $6,000 per year, or $7,000 if you’re aged 50 or older. The difference lies in the tax benefits. When you make contributions to a Roth IRA, the money you invest is taxed. This means when you withdraw in retirement after age 59 ½, you won’t have to pay taxes.
If you’re not sure what option is best for you, you can always hire a CPA to help you weigh the pros and cons of each retirement account type and determine which one is best for your goals and financial situation. A CPA can also give you advice on how to pay off your debts and save for the future.
Take advantage of an employer-sponsored 401(k)
Another retirement vessel you can take advantage of to save for retirement is an employer-sponsored 401(k) plan. Not every employer offers one. If this is your case, stick to one of the aforementioned individual retirement accounts.
A 401(k) plan is a tax-advantaged retirement account that allows you to make contributions toward retirement. It’s suggested to save at least 10 to 15 percent of your salary in your employer-sponsored 401(k) account. Some employers may even make matching contributions, which is pretty much free money. So, if your employer is generous enough to do so, make sure you contribute up to their match or more.
Store money in a high-yielding savings account
Along with storing money in retirement vessels such as an IRA or 401(k), you always want to make sure you have a rainy-day fund in case an emergency pops up, such as a totaled car or expensive medical bill. Having an emergency fund will ensure you don’t have to withdraw from your retirement accounts and pay hefty penalties.
Storing money in a high-yielding savings account is a great way to set aside money and watch it grow. For example, if you set aside $5,000 in a high-yielding savings account with an interest rate of 1.5%, you can make roughly $75 without setting aside any more money.
Diversify your portfolio with stocks
Having a diverse investment portfolio will reduce the volatility of your portfolio over time, which means if one type of asset plummets, you’ll still have a significant cushion to fall back on. Today, investing is much easier, and you can even invest from the comfort of your own home. There are plenty of investment apps you can take advantage of to grow your wealth and invest in different areas of the stock market. Robinhood, Acorns, and MetaTrader 5 are just some of the popular investment tools you can use to set aside money for retirement and watch it grow. Once you’re ready to cash in, sell your stocks, and use your profits for travel, hobbies, or anything else.
Wrapping up
For all retirees, it’s important you budget correctly and begin saving as soon as possible to spend your sunset years stress-free. With these tips on how to save for retirement, you’ll have enough money set aside to pursue your dreams.
