When it comes to retirement, the earlier you can start saving and investing the larger the sum you will have when you retire. Many people rely heavily on their 401(K) to set them up financially, but there are plenty of additional steps you can take to improve the outcome. Whether you’re curious how to get started or looking for ways to advance your current retirement plan, we’ve outlined some tips to help take the guessing out of finances.
Establish a Benchmark
When it comes to saving money, it’s easier to manage when you have an idea of how much you’re going to need. Kickstart your savings by outlining benchmarks to help you achieve your goal. This process can include a final sum as well as a timeline to help you buckle down. If you’re unsure of where to start, you can use this free online retirement calculator.
Contribute to a Savings Account
It’s essential for everyone who is trying to save for retirement to have some form of active savings account. It’s an opportunity for you to keep cash available for emergencies such as household or car repairs, medical expenses, or other unforeseen costs. When you have this type of financing on hand, you won’t be tempted to dip into a 401(K) or IRA account when you find yourself in a bind. Many banks offer savings accounts that come with lower interest rates but accrue no penalties when you need to use the money.
Put Money in Your 401(K)
Some companies provide an option to transfer pre-tax money into your 401(K). By doing this, you are leveraging your finances in a way that will have a more significant pay off in the end. To understand how this could affect you, let’s assume you’re in the 15% tax bracket. If you contribute $75 a month, your monthly take-home amount drops by only $63. Waiting until after taxes and you’re looking at dipping into your monthly budget to come up with that $75.
Pay Yourself First
When you’re trying to invest in your future, it’s wise to pay yourself first. All too often, when extra cash comes in, or that paycheck hits, there are other things in life that at the moment seem more pressing. Setting up an automatic transfer of money into your savings, 401(K), or IRA accounts means you don’t have to worry about whether or not you got around to it.
Keep Your Tax Refund
It’s tempting when you receive your tax refund to try and spend it. Maybe you’re thinking about that much needed holiday or a down payment on a new car, but think before you spend. If you have an IRA account, utilize this extra cash as a way to increase the balance. If the finances could really help you out of a jam, think of storing away at least 15% of the refund rather than using the entire amount.
Open a Roth IRA
A Roth IRA works similarly to the traditional IRA accounts, where you have a limit to your yearly contributions. However, the Roth account doesn’t charge taxes when utilizing them during retirement. It should be noted, this type of account doesn’t allow you to claim a tax deduction, but the important thing is you can worry less about losing money when you take it out. Tax-free qualifications kick in when you are 59 1/2 years of age and have had the Roth account for at least five years.
Utilize the Catch-Up Contributions
IRA and 401(K) accounts have incredible benefits that allow people to retire without worry. The only issue they provide is a cap each year as to how much you are allowed to invest. The good news is, once you turn 50, the usual limitations are replaced with new ones that increase the contribution ceiling. If over the years you haven’t had the opportunity to save as much as you would like, the catch-up contributions provide you with the chance to invest more.
When you think about retirement, you might want to also think about life insurance. It’s another option to protect your family and set them up financially. To learn more about policy, rates, and who will benefit, contact Royce Williams today.