Some people, especially those who tend to be financially savvy, are feeling quite confident about their retirement plans. However, those are actually a small minority, and the rest of us are feeling unsure.
Will you have enough retirement savings to retire at a reasonable time? Do you fear you won’t be able to retire at all? Could you be saving more, or saving “better”? These four steps are by no means a solid retirement plan on their own, but they will get you started toward building a healthier nest egg.
Pay yourself first. Many workers make the mistake of spending their paychecks on bills, groceries, and incidental purchases… And then saving whatever is left. You probably aren’t surprised to hear that taking this approach often means very little to zero dollars are diverted into a savings plan.
Instead, decide upon an amount that you need to save for retirement, and make that the first thing you do with each paycheck.
Automate your savings plan. The easiest way to prevent procrastination is to set up automatic contributions to your retirement savings account. This keeps your plan on track, and reduces the temptation to spend now and save later.
Allow for healthy growth. If you stashed your retirement savings in an everyday savings account, at an interest rate of 1 percent, you wouldn’t earn much return on those funds. For example, saving 200 dollars per month for 40 years, with a 1 percent interest rate, would net you about $118,000. On the other hand, earning 12 percent interest on that money during the same period of time would result in a fortune of over 2 million dollars.
It’s not common to earn a 12 percent return, especially not for 40 years, and we aren’t necessarily suggesting you should shoot for that. We’re just using these figures to demonstrate how drastically your interest rate will affect your earnings over time. Everyone has a different tolerance for risk, and you should carefully balance that tolerance with your desire for growth.
Learn your options. A 401k is a common retirement savings vehicle, and confers some significant tax planning benefits. But it’s not the only game in town. A Roth IRA, for example, offers significantly different benefits that might also have a place within your overall strategy. The point is to learn all of the options available to you, so that you don’t overlook a valuable opportunity.
So with that in mind, give us a call. We can help you evaluate your current retirement savings plan, and show you other options that might also benefit you.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.
These are hypothetical examples and are not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.