When it comes to retirement, everyone has an idea of what that looks like. For some, the thought of retirement conjures up images of endless days spent on a beach, cocktails in hand. For others, it might mean spending more time with family or traveling the world. But whatever your vision for retirement may be, one thing is for sure: you need to start planning for it now if you want to make it a reality. But if you don’t know where to start, here are eight steps that you can take right now to help prepare for an easy retirement with a budget in place.
1. Set Up A Trust
Trusts are a great way to protect your assets and ensure that they are distributed the way that you want them to be. If you’re not sure how to set up a trust, there are many online resources or you can speak to an attorney. By setting up a Bulletproof Trust, you can help keep your assets safe from creditors, lawsuits, and estate taxes. For example, let’s say that you have a house that is worth $500,000 and you have $200,000 in debt. If you were to die or become incapacitated, your family would only receive $300,000 from the sale of your house because the debt would need to be paid first. However, if you had set up a trust, your family would receive the full $500,000 from the sale of your house. And, you will want to put your retirement accounts into a trust as well so that they are not subject to probate.
2. Get Out Of Debt
If you’re carrying any high-interest debt, now is the time to start paying it off. This will free up more money in your budget so that you can start saving for retirement. For example, let’s say that you have a credit card with a balance of $5,000 and an interest rate of 18%. If you only make the minimum payment each month, it will take you 27 years to pay off the debt and you will end up paying $12,718 in interest! However, if you were to increase your payment to $100 per month, you could pay off the debt in want to put your retirement accounts into a trust as well so that they are not subject to probate. Additionally, get out of any other high-interest debt that you’re carrying, such as personal loans, student loans, or car loans. Your goal should be to have all of your debt paid off before you retire.
3. Build An Emergency Fund
You never know when an unexpected expense is going to come up or when you might lose your job. That’s why it’s important to have an emergency fund in place so that you’re prepared for anything life throws your way. Experts recommend saving enough money to cover three to six months of living expenses. So, if your monthly expenses total $3,000, you should have between $9,000 and $18,000 saved in your emergency fund. Once you have your emergency fund established, you can start putting any extra money toward your retirement savings.
4. Invest In A 401(k) Or IRA
If your employer offers a 401(k) plan, make sure that you’re contributing at least enough to get the employer match. For example, if your employer matches 50% up to 6% of your salary, you should be contributing at least 6% of your salary into your 401(k) to get the full employer match. If you don’t have a 401(k) option through your employer, or if you’re self-employed, you can open an Individual Retirement Account (IRA). There are two main types of IRAs: traditional and Roth. With a traditional IRA, you make contributions with pretax dollars and you don’t have to pay taxes on the money until you withdraw it in retirement. With a Roth IRA, you make contributions with after-tax dollars and you don’t have to pay taxes on the money when you withdraw it in retirement. Both traditional and Roth IRAs have their own set of rules and benefits, so be sure to do your research before opening an account.
5. Invest In A Taxable Brokerage Account
In addition to investing in a 401(k) or IRA, you can also invest in a taxable brokerage account. This is a great way to diversify your portfolio and invest in things that might not be available through your employer’s 401(k) plan. For example, you might want to invest in real estate, bonds, or international stocks. Just keep in mind that you will have to pay taxes on any gains that you make in a taxable brokerage account.
6. Invest In A Health Savings Account
If you have a high-deductible health insurance plan, you can open a Health Savings Account (HSA). This is a tax-advantaged account that can be used to pay for qualified medical expenses. The money that you contribute to an HSA is not subject to federal income tax and it grows tax-free. Plus, if you use the money in your HSA to pay for qualified medical expenses, you won’t have to pay any taxes on the withdrawal. A health savings account will also help you save money for retirement because you can use the money in the account to pay for Medicare premiums and other out-of-pocket medical expenses in retirement.
7. Invest In A Side Hustle
If you want to boost your retirement savings, consider investing in a side hustle. This can be anything from starting a blog to becoming a rideshare driver. The great thing about a side hustle is that you can make as much or as little money as you want. So, if you only have a few hours a week to spare, you can still make some extra cash. Plus, any money that you make from your side hustle can be used to supplement your retirement savings.
These are a few of the best ways to prepare for an easy retirement with a budget in place. By following these tips, you can ensure that you have enough money saved to cover your expenses in retirement. And make sure to start investing as early as possible so that you can take advantage of compound interest.