Unless you’re already wealthy, setting aside money to have enough to live comfortably after retirement is not an option; it’s a must. Unfortunately, no matter how you look at it, saving for your retirement can be a huge endeavor and a challenge that some people just completely give up on it. That’s why financial advisors exist, and their forte is to help people save money.
There are many ways for you to save for your retirement funds. If you’re confused about it, this article will help you get some ideas on how to start saving for your retirement funds. Here are some of them:
Contribute to 401K
When it comes to retirement, one of the first things you’ll always hear is 401k. It’s a retirement saving and investment plan employers offer to their workers. It’s a way for workers to have a tax break on the money they are saving. Essentially, employers have an automated system where a percentage of their enrolled employees’ salaries automatically goes to this plan.
This catchy name comes from the 401(k) tax code that established this plan.
This plan is commonly known for having tax breaks on its contributions, but it depends on the type of plan you take. So the tax break either comes after contributing the money or the moment you withdraw your contributions during your retirement.
So, where do you get it? As mentioned before, 401k plans are offered mainly by your employers, but not all employees get access to them. Employers review your performance, and if you fit in the criteria, you get a 401k plan.
But why would you want to get a 401k plan? It’s mainly because of the employer match. The company you work for offers a specific amount of money to your 401k plan, like a dollar-for-a-dollar deal or at least 6% of your contribution. In short, an employer match is when they give you free money to add to your contributions to your 401k plan.
Set up an IRA
One of the acronyms that are also commonly thrown around in topics of conversation about retirements is IRA. An IRA is an account you can set up in a financial organization that allows you to save money for retirement with tax-free growth on a tax-deferred basis. There are three basic types of IRA:
- Rollover IRA: The money you contributed to other sources will be rolled over into your IRA. Rollover involves moving your eligible assets in the current IRA that you set up. It even includes employer-sponsored plans like 403(b)s and 401(k)s.
- Roth IRA: You will be making contributions in this account with your taxed money. It will make your money grow tax-free, and your withdrawals will also be tax-free, provided that they’re in the right conditions and situation.
- Traditional IRA: You will be making contributions with the money from your returns. Also, any earnings you’ll make will be tax-deferred until you withdraw them during your retirement.
So why should you go for an IRA? Many financial experts nowadays say that you might have to give up 85% of your pre-retirement income into your retirement savings because 401k plans nowadays might not be enough due to the current and future conditions of the market.
With an IRA, you’ll be able to supplement your 401k plan further, gain more access to a variety of investment choices, and take advantage of tax deferral and tax-free growth.
Consider Delaying Social Security Benefits
When it comes to social security retirement benefits, you may want to wait to receive them until you’re 70. It’s because, for one, if you get your benefits before the full retirement age, your benefits will reduce by at least 25%-30%, which is permanent. Two, if you don’t have taxable income during your retirement, you may not have to pay any federal taxes on your social security benefits.
Instead of getting your benefits early, you can withdraw your 401k contributions first, or if you want to pay off a purchase, you can opt for alternatives payday loans that are available online to pay for them.
Most of us work for the dream of having a comfortable life once we retire. Just imagine having your vacation somewhere in the Bahamas while your taxes are settled, and you’ve saved enough for your kids. That said, if you’re considering saving for your retirement, now is the best time to do it.