Retirement is one of the most important events in a person’s life. While most people know saving for retirement is important, they put it off because they’re living paycheck-to-paycheck, or they have other financial goals they feel are more important. But, saving for retirement doesn’t have to be hard – and you can do it, no matter what your current financial circumstance may be. Let’s take a look at five basic tips to maximize your retirement savings.
Tip #1: Determine what your retirement looks like.
Before you begin planning for retirement, you need to answer these important questions:
- When do I want to retire?
- Where do I want to retire?
- What do I want to do after I retire?
Answers to these questions will help you define how much money you’ll need to save and what retirement accounts may be required to meet your expectations. No one will have the same retirement outlook, so make sure you’re planning for the one you envision.
Tip #2: Save a little, consistently.
Start small. Save $10 or even $25 per paycheck and put it into a retirement fund that limits your access. Then, if you get a new job with more pay or earn an increase in pay at your current job, save a little more – even if it’s just $10 or $20 more per paycheck. Saving a small amount of money consistently can grow to a significant amount if you leave it alone – this is called compound interest, and here’s how it works:
If you save $100 per month when you’re between 25 and 65 years old and earn a 5% annual return, you’ll earn approximately $148,856 after 40 years. While you’ve only saved $48,000 of your own cash, the other $100,000 was generated by compounded investment returns. The earlier you start saving, the more you can save in the long run.
Tip #3: Automate your contributions.
With everything you have going on in your life, it’s easy (and even tempting) to skip making a contribution to your retirement account. So, automate it. That way, you reduce the temptation to use the money. Set up automatic contributions to your retirement account from every paycheck and never worry about it again. Your money will literally grow while you sleep.
Tip #4: Take advantage of tax breaks.
Did you know the federal government may reward you for your retirement savings with a lower tax bill? You can make certain tax deductions based on the amount you contribute to tax-advantaged accounts, such as a 401(k) or IRA. Contribution limits and deductions may change based on whether you’re married or single, or if you’re over age 50. It’s best to speak with your tax advisor to determine what you can deduct as you save for retirement.
Tip #5: Let your employer help you.
Does your employer offer a 401(k) plan? Some companies will match your 401(k) contribution each year based on certain qualifications, such as how many years you’ve been at the company or how much you’ve contributed to the fund. If your employer matches your contribution dollar-for-dollar, you’ll be able to double your retirement savings.
Saving for retirement is not the same for everyone, because your goals, desires and dreams are likely a little different from someone else’s. The important thing to remember is to save for the retirement you want – and do so as early as possible. Following these tips could help you maximize your savings.
© BancorpSouth 2018