Whether you’re young or young at heart, trying to wrap your head around saving for retirement can seem overwhelming when you’re focused on day-to-day expenses. But putting off saving now can haunt you later. Here are some tips for saving for retirement.
- Decide on a savings goal
You can’t predict the future, but you can set a retirement savings goal by reviewing your current spending and projecting your spending needs in retirement. Experts say you’ll need at least 70% of your current income to keep your same standard of living in retirement.
After calculating your current and future spending needs, take stock of your savings so far. A retirement calculator will help you assess where you stand and set a new monthly savings goal for retirement. An important factor to consider is at what age you plan to retire.
- Contribute to a retirement plan with tax advantages
Now that you have a handle on the percentage of income you should save each year, consider contributing to a retirement savings plan with tax advantages, such as a traditional or Roth 401(k).
Many employers sponsor 401(k) retirement plans, and some even match your contributions up to a limit. The maximum employer match averaged 3.5%, according to a 2015 Department of Labor report. It’s smart to put in enough to get the free match.
Contributions to a traditional 401(k) are untaxed going in, but you pay taxes on withdrawals in retirement. With a Roth version, it’s the distributions in retirement that are tax-free, but you pay tax on the front end on your contributions.
You can also contribute to a traditional or Roth individual retirement account. Like the 401(k), the traditional IRA provides an upfront tax deduction; with the Roth version, you pay taxes upfront.
- Consider CDs for your IRA
If the volatility of the stock market is too risky for your taste, or if you just want a safe return on your IRA, consider investing in standard or jumbo certificates of deposit.
A CD generally returns a higher rate of interest than a regular savings account, and credit unions routinely offer better returns on CDs than banks, according to the National Credit Union Association. Institutions like First Financial Credit Union typically offer customers a range of choices of rates and terms. A higher balance and longer term correlate to higher returns.
- Catching up on saving
Thanks to compound interest, the earlier you start saving, the less you need to save for retirement overall. But what if you’re middle-aged and haven’t saved much? You can get back on track.
Workers 50 or older who participate in a traditional or Roth 401(k) can kick in up to $6,000 in catch-up contributions to their account in 2016. That’s in addition to the $18,000 maximum limit for all workers this year, for a total contribution of $24,000. Traditional and Roth IRAs also have catch-up provisions, though they’re capped at $1,000.
There are many ways for older workers to save. Consider paying off high-interest credit cards and other debts. Look for expenses you can do without. Put the savings right into accounts to grow your nest egg.
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