Saving for retirement is not an easy task, as most Americans nearing retirement are not remotely financially ready for retirement. For many Americans between the ages of 55 to 64 their net worth has been falling rather than rising as it should. The problem for many is not knowing how to save for retirement, and for many more putting it off for “just one more year”. Lets face it retirement is the last thing most of us want to think about, but retirement is coming to us all and the longer we put off planing for it, the more dire your situation can become as you edge closer to your retirement date. I am sure you do not want to be like my father who is working still at age 80. Here are a few ways to get started on the path to saving for retirement.
15 percent or higher into savings:
You should budget to allocate 15% of your salary or income into savings for retirement and or investments that can be leveraged for retirement. Keep in mind for most 15% is a low amount towards a comfortable retirement, so if you can save more by all means do so.
If your employer offers 401(k) take advantage of it. It has tax incentives so is well worth doing. Also if your employer offers matching for your 401(k) plan it is basically free money after you are fully vested into your employers 401(k) plan. Keep in mind becoming fully vested can take a few years however, but is well worth the wait.
If your tax bracket is low this is the way to go since Roth IRAs tax you on your current income bracket, then the withdrawals in retirement are tax free, which allows you the maximum benefit in retirement.
Set up direct deposit for a retirement plan such as an IRA. This way your not thinking about it, and you will not forget it either since it is on full autopilot.
Do not withdraw early:
If you withdraw any of your retirement money before age 59½ you are now subject to a penalty fee of 10% as well as now being fully on the hook for taxes on that income. There are very few exceptions to this, for example withdrawing the money to pay for say chemo therapy, your first home or higher education.
If you delay retirement to age 70 you will get increased social security and have an extra five years to save for retirement. This might sound rather bleak but millions of Americans are now doing just that. Many of these Americans were woefully unprepared for retirement.
Brand and company loyalty sounds great in theory but the truth is most Americans are overpaying on car insurance, credit cards, homeowners insurance and health insurance, and all of this money could have been diverted into your retirement savings. Shopping around for better rates may well be worth your time and could save you thousands of dollars over the course of 20 years which can of course be leveraged into investments and your retirement savings.
Most of us see tax refunds as free money but it is not, in fact its money we overpaid the government and they made money on that overpayment. Tax refunds over 20 years invested into your retirement savings could boost your retirement by about $62,400 since the average tax refund this year is $3,120. That is a lot of money that could very well pad your retirement. That income could easily triple or higher, if invested correctly.
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