Have you thought about planning your retirement? It doesn't matter how old you are; it's essential you start creating a plan for your future self, especially when it comes to retiring. Unfortunately, almost half of American households have NO money saved for retirement, according to the Survey of Consumer Finances from USA Facts! Social security benefits are calculated based on your age and lifetime earnings, which can be tough to live on alone. That's why it's crucial you get started planning with these key tips for retirement.
10 Key financial tips for retirement
Here are 10 tips to boost your retirement savings and allow you to work towards a happy retirement!
1. Start investing early
The sooner you start saving, the better. You'd be surprised how even small amounts add up over time. For example, let's say you invest $200 a month (~$50 a week) for ten years. If you invest this money assuming an average return of 8% in the stock market, you could have $36,944.12!
Delay retirement savings by 10 years, and you’ll have to contribute three times the normal amount to your savings as you make up for the decade of saving you lost. Start today to save for your future as you maximize your retirement savings contributions. Saving money is one of the main tips for retirement that you need to start immediately.
2. Think small
You can save enough money for retirement without going broke today. Thanks to compound interest, your small, regular retirement savings contributions grow quickly.
Compound interest is explained as interest on interest. Your initial deposit or principal earns interest. Interest is then calculated on the new total amount and so on. As the interest compounds on your savings, your retirement accounts grow.
3. Know how much you need to save for retirement
Studies show that 56% of Americans have no idea how much money they’ll need for retirement. Additionally, four in 10 Americans underestimate their need by $250,000. Maybe you, too, have no clue about how much to save. You may have chosen a random figure or decided to save the same amount as your parents, kids, or coworkers.
Instead of guessing, calculate your personalized savings goal. In general, your specific goal depends on your life expectancy, projected retirement lifestyle, and current spending and savings habits. Review these factors as you decide exactly how much money to save.
4. Plan, prioritize and protect your investments
No matter where you’re at on your retirement savings journey, it’s easy to feel overwhelmed as you think about how much money you should save. The three P's of retirement savings - plan, prioritize and protect will help you confidently achieve your goals.
Plan
Many experts suggest that you save 15% of your annual income for retirement. However, your needs may vary. Your customized savings plan should outline your retirement goals and include specific details. For instance, how much money you really need to save and the types of retirement accounts that offer maximum yields.
Prioritize
You may love shiny toys or have a family to support, but you also need to prioritize your future. Consider ways you can cut expenses or increase your income now as you prioritize retirement savings in your budget.
Protect
Resist the temptation to use your retirement savings for other expenses. Save an emergency fund to cover unexpected expenses so you can preserve your retirement savings for their intended purpose. Saving for emergencies is an important tip for retirement because it protects you from tapping into your retirement funds for unexpected costs.
5. Enroll in your employer’s retirement savings plan
Many employers offer retirement savings plans and may even match a percentage of the funds you save. Millennials are eight percent less likely than other generations to enroll in their employer’s 401k plan. You owe it to your future self to save now, though. Ask your supervisor or Human Resources staff for details about how you can enroll in your employer’s retirement plan.
6. Get help from a financial expert
While you’re an expert in your chosen career, you may not know much about retirement savings. More than seven in 10 Millennials admit that they don’t know as much about retirement savings as they should, but fewer ask for assistance from a professional.
Ask for help as you plan for your future. A professional financial advisor explains details about retirement savings, helps you discern your goals, and advises you about the options that fit your needs.
7. Prepare for inflation
Inflation affects the cost of pretty much everything and lowers the value of money. Inflation affects interest rates, savings, investments, and businesses.
For example, an item's price rises, but the amount doesn't, like a gallon of milk or carton of eggs. It can cause increased costs in specific industries or an entire country's economy!
So, basically, what might cost you $5 today will cost more by the time you retire. That's why you need to prepare for lifestyle inflation as much as possible. Think of that extra amount you will need to cover even basic living expenses and start contributing additional money into your retirement savings.
8. Get out of debt
One of the simplest yet most critical tips for retirement you can apply is to get out of debt. Getting out of debt is essential to make retiring even possible! Not having any debt means you don't need as much money every month to meet your needs.
For example, if you pay off your mortgage, that's a huge debt you don't have to pay every month anymore. The less you owe, the longer your retirement funds will last, and you won't have to return to the workforce because you will be debt-free!
9. Earn passive income
Earning passive income is the best thing you can do to increase your cash flow and stretch your retirement money further. Passive income is income that doesn't require much time to earn from. For example, peer-to-peer lending, investing, and rental properties are types of passive income. Basically, after the initial set-up, you keep earning from it without working it as an everyday job.
Consistently earning passive income will ensure you are bringing in more money and will prevent you from tapping into your savings as often. This is a great tip you can start right away.
10. Open your own IRAs and brokerage accounts
If your employer does not offer a savings plan, set up your own IRA and brokerage accounts. Build savings for retirement into your budget, to make sure you can make consistent deposits.
The two most popular IRA options are the Traditional IRA and the Roth IRA. With the traditional IRA, you get to grow your money “tax-free.” This means your gains are not taxed until you withdraw your funds after you retire.
The Roth IRA, your money still grows tax-free but is also tax-free when you withdraw it upon retiring. However, you have to pay full tax on your income before you make contributions. So you get no tax breaks now, but you do in the future.
Another alternative to a 401k is opening your own brokerage account. They don’t offer the same tax benefits, but you have more flexibility, so you can use your money as you see fit. There are no contributions limits, which allows you to invest as much as you want.
11. Leverage a Health Savings Accounts (HSA)
When it comes to tips for retirement, a health savings account can be a big deal. Especially since it can be used to pay for health care expenses which can be very expensive. An additional benefit is that it can also be used to invest for retirement. Your contributions are 100% tax-deductible, and any money not unused for medical expenses can continue to be invested and grow over time.
Once you reach age 65, you can use the fund inside your HSA account to cover almost anything beyond health care expenses. However, if you have to tap into your funds to pay for medical bills before retirement, it could reduce your retirement income quite a bit.
12. Live below your means
Unfortunately, many people run out of money once they retire, which requires them to return to the workforce. A way to avoid this happening to you is to start learning to live below your means now. Not only will it help you manage your money better, but it will give you more opportunities to save more towards your retirement fund.
Plus, you will know how to live more frugally, which will prevent you from making determinantal money mistakes.
So start finding ways to cut your budget, such as couponing, buying items preowned, and downsizing your lifestyle. You’d be surprised at how much money you can save with just a few tweaks to your habits.
13. Increase your income
If you crunched the numbers but aren’t making enough to hit your retirement savings goal, then look for ways to increase your income so you can save more. For instance, start a side hustle, ask for a raise, or get a part-time job.
Maybe you can learn a high-income skill and make a career change, so you are bringing in more money. There are many ways to increase your income, so you don’t short-change yourself when it comes to your retirement savings. This is one of those game-changing tips for retirement when it comes to accelerating your goals.
14. Retire somewhere affordable
Whether you see yourself sunbathing on a beach in Florida or wandering around mountain trails in Tennessee, there are many affordable towns you can retire to. If you truly want to stretch your budget, retiring somewhere affordable should be in your plans because the lower cost of living can really save you a lot of money on basic living expenses.
Houses and apartments are cheaper, which is great whether you are looking to buy or rent. Where you live can also affect the tax rate on your pensions and social security. Living somewhere affordable is one of the most frugal retirement planning tips you can do!
You can have a comfortable retirement with these key tips
The sooner you plan and save for retirement, the better. When it comes to saving, more is always better. Don't forget to plan, prioritize, and protect your investments as well. Starting these retirement planning tips now may even help you retire early!
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