Financial

How to Save Enough for Retirement

Retired Couple
Written by James Burbank

The truth about retirement planning is simple – the earlier you start saving, the better off you will be. It may seem impossible to make any room for retirement contributions, next to fixed monthly costs, bank loans, and other savings, but the fact is the longer you put off planning for your retirement years, the further behind you’ll fall. There are always ways to start saving for your retirement, without making any drastic changes in your lifestyle. These are the steps you can take to increase the savings for your retirement days.

1. Start saving and make it a habit

Saving is a rewarding habit, and you know it. So, if you’re not saving, start now, and if you’re already saving, just keep going. There’s no need to start big, but start saving small amounts of money and try to increase the amount you save whenever you can. Make it a priority, make a plan, set goals, and stay on track. If you start young, for example at age of 23, you need to save only $15 every day to be a millionaire by the age of 67 (thanks to the power of compound interest). It’s never too late to start saving.

2. What are your retirement needs?

The essential thing to know when planning ahead for a secure retirement is knowing your needs. Once you retire, you’ll need at least 70% of your preretirement income (if you’re a lower earner), while those who would want to maintain their standard of living when they stop working will need about 90% or more. Plan ahead and take charge of your financial future. If you’re an Australian, you can submit a claim for Age Pension, after you have been determined as eligible and find out how much you can get according to the age pension income test.

3. Your employer’s savings plan

Does your employer offer a retirement savings plan (such as a 401(k) plan)? There’s no reason for you not to sign up and contribute all you can. It will be made easier with automatic deductions, lower taxes, and your company kicking in more. Tax deferrals and compound interest will make a huge difference in the amount you’ll accumulate over time.

If you don’t know whether they offer any kind of retirement plan, get informed, and find out how much you’d need to contribute in order to get the full employer contribution, and how long would it take to stay in the savings plan to get that money? According to news.com.au, Australians should take control over their superannuation if they don’t want to live a grim retirement, while more and more people decide to self-manage their retirement funds (more than 1 million Australians).

4. Open an Individual Retirement Account (IRA)

When you open an Individual Retirement Account, you have 2 options – a Roth IRA or a traditional IRA. The tax treatment of your withdrawals and contributions will depend on your selected options, but the point is the IRAs provide certain tax advantages. You can put up to $5,000 per year into an IRA, or contribute even more if you’re older than 50. You can set up your IRA to automatically deduct a certain amount of money from your savings or checking account and deposit it in the IRA.

5. Don’t spend your retirement savings

It is recommended not to touch your retirement savings now, because you will lose interest and principal. You may lose tax benefits as well, and probably have to pay withdrawal penalties. If you change jobs or employers, roll your savings over to an IRA or your new employer’s plan, or leave them invested in your current retirement plan.

Saving up for a retirement doesn’t have to be difficult, if you plan in properly, start on time, and make it a habit. Once you plan ahead, probably the best thing to do with your retirement savings is to automate them. Once you have a piece of your paycheck automatically sent to your retirement account, you’ll simply learn to live without it.

About the author

James Burbank

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