As inflation erodes the purchasing power of money, retirement planning has become critical for financial success. Whether you’re two years or ten years away from retirement, having a clear strategy can make a world of difference. With retirement planning, you can ensure financial freedom and manage debts with ease.
Here are five tips every senior should follow when saving for retirement:
Start Early
According to a recent SoFi retirement savings survey, one in three respondents reported starting to save for retirement between the ages of 25 and 35. Saving as early as possible can give you the opportunity to capitalize on the power of compounding returns. Compound interest is the process by which a sum of money grows exponentially due to interest building upon itself.
Keep in mind that saving a little early is much better than saving a lot later. Starting early also allows you to be more aggressive with your investment strategy. You can explore numerous asset classes and diversify your portfolio.
Contribute to Your 401(k) Account
A 401(k) account is an employer-sponsored retirement savings plan that allows employees to contribute a portion of their paycheck to a tax-advantaged account. Since contributions are made with pre-tax dollars, your taxable income will reduce over time.
If your employer offers a traditional 401(k) account, take advantage of it. Even if you switch jobs later on, the money you’ve saved up will belong to you. Having a 401(k) account makes saving for retirement effortless.
Open an Individual Retirement Account (IRA)
An Individual Retirement Account (IRA) is a personal retirement savings account that helps grow your retirement money tax-deferred or tax-free. IRAs can be opened through various financial institutions, such as banks, brokerage firms, and insurance companies. Types of IRAs include:
- Traditional IRAs – You can make contributions to a traditional IRA with pre-tax dollars, reducing your current taxable income. There are no income limits to traditional IRAs.
- Roth IRAs – You can make contributions to a Roth IRA with after-tax dollars, which means there are no immediate tax deductions. Withdrawals can be made tax-free and penalty-free at any time.
Contributing to both traditional IRAs and Roth IRAs can help you ensure financial security after retirement.
Keep Tax Deductions in Mind
As you’re saving for retirement, don’t forget that all the money is not yours to keep. This is especially important for those saving money through their 401(k) accounts. The IRA will tax you, so strategize accordingly.
Whether you’re investing in stocks or opening an IRA, keep tax deductions in mind. This will help you avoid financial surprises.
Automate Your Savings
Imagine growing your money without having to think about it. Luckily, there is a way to do it. Automate your savings to create a solid financial foundation. Here are some ways you can automate your savings:
- Set up a direct deposit into your checking account
- Consider employer-sponsored retirement plans, such as 401(k) accounts
- Set up payment transfers between your checking and savings accounts
James is the head of marketing at Tamoco
