No matter what age bracket you’re in, if you’re working, you’re probably thinking about your retirement. It’s the bright light at the end of the tunnel when you can sit back, relax and watch that ball game you’ve always wanted to, in peace.
One of the biggest issues that most of us face when contributing towards our savings is simply the unavailability of funds. With prices not getting any lower, we face a mountain of expenses from the getgo with everything from insurance prices to Spectrum Internet prices. No matter how valid and justified it may be to meet these expenses, it cant be argued that savings are just as crucial and valid.
In fact, the latest study by the Federal Reserve stated that a quarter of Americans don’t have any retirement savings. This means millions of people are worried about their futures and want to contribute in some way towards it but don’t know how or what to do. This article will focus on exactly this. So, read on and find out how you can save for your retirement.
#1. Determine What Kind of Retirement You’re Looking For
Warren Buffet’s famous words ring true, “Don’t save after spending. Spend after saving”. It doesn’t matter how much you earn, what matters is how much you save. It’s best to think of savings in your early years in order to get a head start. There are many ways you can adopt to get more savings out of your existing income. You can control your bills and save on those extra dollars.
You need to determine what kind of a retirement you want to have. Do you want to be driving a Ferrari, or do you want to comfortably live the rest of your days? As soon as you determine this, you’ll reach the second step.
#2. Find a Savings/ Retirement Account that Matches Your Future Needs
When it comes to choosing a savings account to invest your savings into, it’s best to first know what types of accounts are out there.
- IRA Accounts – Traditional accounts & Roth accounts
- 401(k) Accounts – Traditional accounts & Roth accounts
There are two popular options when choosing your retirement accounts: the Individual Retirement Account or IRA and the 401(k) which is offered by employers. Traditional savings accounts are tax-deductible on your investments. However, you’ll still have to pay your taxes upon withdrawal. Roth accounts are where your investments are taxed before entering your savings account. Hence you can withdraw your amount tax-free. Both options come with their own perks and benefits.
The contribution limits differ between IRA and 401(k) accounts. For IRA users, the max limit is capped at a $6000 contribution every year. Whereas for those who go for a 401(k) with their employers, the max limit is capped at $19,500 a year. Withdrawals can be made at the age of 59½ or earlier as well based on special circumstances and a 10% penalty.
If you’ve reached the max limit of your 401(k) and still have room for more savings, then it’s best to open up an IRA alongside your 401(k). This will allow you another $6000 worth of room to save for your retirement. If you’ve maxed out both, then it’s best to invest the rest into assets or stocks.
#3. Learn to Adapt and Save On a Budget
You want your money to start working for you. It is best to cut down on unnecessary expenses wherever you can. Most Americans’ biggest financial regret is not saving for retirement sooner. When we start our careers we’re hardly thinking about savings, but getting an early start to your savings will never do you any harm. Here are a few healthy ways to stretch your income and contribute to your savings
- Get some side earnings that can really help increase those extra savings for your account.
- Learn to live on a budget. It doesn’t have to be a huge change in lifestyle but cutting down on some wasteful expenses is the best way to get a kickstart to opening up your income to different avenues.
- Try automatic transfers on your savings. If you don’t see your savings, then you’re more likely not to think about it and spend it. Whether your employers can do it for you or you can set up a different account dedicated to your savings, automatic fund transfers are a great way to let your savings accumulate while you can forget about it.