Every worker wants to retire at some point, but some steps must be taken long before that day comes. Here are three simple ways to ensure that you have a solid retirement fund.
1. Set Retirement Goals Early
Though retirement seems far off in your 20s and 30s, you will want to start planning for it as soon as possible. By the time you stop working, you should have 10-12 times your annual salary saved up. This seems like a large sum, but Fidelity Investments offers feasible milestones for each decade of life.
- By age 30, you should have your annual salary set aside, at the very least.
- At 40 years old, you should save three times your annual salary.
- By 50 years of age, you will want to have six times your annual salary in your retirement fund.
- At 60, you should have eight times your salary.
- In your mid to late 60s, you will want to have a total of 10 to 12 times your salary for the rest of your golden years.
2. Consider Opening an IRA
An IRA (Individual Retirement Arrangement) account differs from a traditional 401(k) in that it is not subject to annual taxation. You will also have a greater variety of investment options for your IRA funds than you would with a 401(k).
The traditional and the Roth are the two types of IRAs that you can invest in. You may receive a deduction on your taxes during the year that you contribute funds to a traditional IRA. There is a $6,000 annual limit on traditional IRA contributions until you reach the age of 50, after which the yearly maximum is $7,000. You will have to pay taxes on withdrawals from your traditional IRA, and you will have to begin withdrawing from it at 72 years of age.
A Roth IRA allows you to accumulate your retirement funds tax-free, so long as you pay taxes on your current income. When you take money out of your Roth, you will not have to pay taxes as long as you are compliant with IRA guidelines. And there are no withdrawal regulations at a certain age.
You should consider opening an IRA if:
- Your employer does not offer a 401(k) plan.
- You’ve maxed out your 401(k).
- You work part-time.
- The bulk of your income comes from the gig economy.
3. Track Your Spending
You do not have to be a financial guru like Basil Mahadeo to know how to save up for your retirement. Keeping track of your spending habits and decreasing excess spending is a powerful way to contribute some extra cash to your retirement fund. Even small decisions like making your coffee at home and bringing it to work instead of buying it at a cafe will help you save money in the long term.
Some banks offer programs to help you monitor your finances. If your bank has one, use it. And if not, independent apps like Truebill provide similar services.
Following these tips will help you plan for a successful retirement.