What is the True Meaning of Retirement?
When considering what are the best ways to save for retirement, let’s start with a simple definition of the word. Retirement refers to the time of life when one chooses to leave the workforce behind permanently. The traditional retirement age is 65 in the United States and most other developed countries, many of which have a national pension or benefits system to supplement retirees’ incomes. Many people plan on their retirement being the time they live their best life, so if that’s you, it’s time to start preparing!
Nowadays, the economy can make it harder for people to save, and most of us have to learn extreme discipline to make retirement worthwhile. But it’s doable, and you’ll be so glad you did.
Types of Retirement
- Early Retirement
- Voluntary Retirement
- Deferred Retirement
Way to Get Yourself Prepared for Retirement
- Put 15% of your salary in savings
Ideally, you’ll start doing this with your first paycheck. If 15% feels like a big number, start small and gradually increase the percentage over time. The more time you save, the more time the money has to accumulate and earn compound interest.
- Take your employer’s 401(k) match
Think of a 401(k) match as free money. Just keep in mind that you won’t actually get to keep those contributions until you are fully vested in your employer’s plan.
- Set up an automatic direct deposit
The easiest and least painful way to start saving is to put your contributions on autopilot. Check with your employer to see if you can direct deposit a portion of your paycheck into a retirement savings account.
- In a low tax bracket? Consider investing in a Roth IRA
Roth IRAs are smart retirement investment choices for young professionals with lower salaries in the beginning stages of their careers.
- The benefits: Any after-tax Roth IRA contributions will be taxed at a lower rate during that time. Later, you can withdraw that money tax-free, regardless of your tax bracket. A Roth IRA taxes you based on your current tax bracket, but future withdrawals aren’t taxed as long as you meet certain criteria.
- Catch up with higher IRA contribution limits
Take advantage of catch-up contributions if you’re older and behind on your retirement savings. People 50 years old or older at the end of the calendar year can make additional, or “catch-up,” contributions to their IRA accounts.
- For 2022, the IRA contribution limit is $7,000 for people 50 and older. It’s $6,000 for people who are younger than 50.
- Audit Your Retirement Account Fees Every Year
Do you know all the fees associated with your 401(k) account? A fee increase of just 1% to 1.5% could amount to thousands of dollars over a couple of years, so do an audit to ensure you’re not paying too much in fees.
- Don’t make early retirement account withdrawals
Generally, people who withdraw from their IRA before age 59 1/2 are subject to a 10% tax penalty fee and a tax on the income. However, there are many ways to avoid withdrawal penalty fees.
- Delay Social Security payments for as long as you can
If you wait until your full retirement age, typically around age 66 or 67, you’ll receive 100% of your Social Security benefits. If you delay your retirement beyond your full retirement age, your benefits will increase by a certain percentage until you reach 70.
- Put every tax refund into savings
Using the extra money from your tax refund on a new toy or vacation is tempting. But these spurts of cash provide the perfect opportunities to give your retirement savings a big boost.
- See a Certified Financial Planner once a year
Your money might grow faster — and last longer — if you use a trusted certified financial planner or advisor to help you set goals, stay on track, and protect your assets. Many CFPs specialize in retirement planning and work on a fee-only structure, which can reduce the cost of the service.
- Use your home equity to fund your retirement
If you’ve built home equity over the years, consider selling your home and using the proceeds as part of your retirement fund. Just remember that your cost of living might be affected if you need to rent a new home or move into a retirement community.
- Learn to stick to a budget
Think of a budget as an action plan, not a deprivation plan. It’s not about how much you can afford to spend; it’s about how much you can afford to save.
That should give you a good start on what are the best ways to save for retirement, but stay aware of new developments and ideas, because there are many directions you can go.
For more help with your life, please read this article.