How To Make The Most Of Your Retirement Savings
News flash: The ‘golden days’ of retirement don’t usually come with a magical silver lining. Financial security and financial enjoyment don’t just happen after you’ve decided to leave the workforce and spend your days enjoying leisurely pursuits.
A retirement that’s financially manageable takes some thought and planning, but it can be achieved by making smart choices now rather than later. It doesn’t require upending your lifestyle, denying yourself the things you enjoy, or foregoing fun. Making the most of your retirement savings just takes thinking a bit more about tomorrow while still enjoying your life today.
Here’s how you can make the most of your retirement savings.
Contribute To Your Workplace Retirement Plan Or 401(k)
You can enhance your retirement saving plan with an employer-offered retirement plan such as a 401(k). With a traditional 401(k) plan, contributions are made with pretax dollars, meaning you won’t pay federal income taxes on those contributions. Your contributed money will grow tax-deferred until you start making withdrawals during retirement.
You might also have the option to participate in a Roth 401(k) plan, which requires you to make contributions with after-tax dollars. This option generally appeals to individuals with low current tax rates who foresee that they’ll be in a higher tax bracket when it comes time to start making withdrawals.
Look Into Opening An IRA
An individual retirement account (IRA) offers several more investment options than the limited choices in a 401(k) plan. With an IRA, you can choose from bonds, individual stocks, mutual funds, ETFs, and more. With a traditional IRA, you may be eligible for a tax deduction in the year you make a contribution, but bear in mind that you’ll be required to pay taxes when you start making withdrawals. Any withdrawals made before you reach the age of 59 ½ will come with a potential 10 percent penalty and a requirement to pay taxes; you’ll be required to start making withdrawals from the account once you reach 72 years of age.
A Roth IRA offers many of the same features as a traditional IRA but comes with a significant tax advantage as well. Contributions to Roth IRAs are made with after-tax dollars, which means you won’t get a tax break upfront, but the good news is you won’t be required to pay taxes on withdrawals made during your retirement. In addition, a Roth IRA has no withdrawal requirements, which means your money can grow for a longer period of time.
Take Into Account Your Employer’s Company Match
It’s akin to getting ‘free money.’ Employers offer to match a portion of the employee’s contribution to their retirement plan. An employer may offer to match 100 percent of your contributions up to three percent of your salary, and 50 percent of your contributions on an additional two percent. Say you contribute five percent of your salary to the retirement plan and your employer contributes another four percent of your salary through its match plan–that would mean that a total of nine percent of your salary would be going toward retirement savings. Strive to contribute enough to your retirement plan so that you’ll receive the full amount of any employer match.
Start Saving And Planning Today
The sooner you begin thinking about and planning for retirement, the better. Every little bit that you put away today will have time to compound and grow. Truth is, any money you set aside in your savings now will be worth more during retirement than the money you start saving years down the road.
And the good news is, you don’t have to set aside only large sums of money to make a difference when it comes to your financial retirement goals. Starting with a small amount can make a definite difference. For example, if at age 25 you start saving $75 monthly, you’ll have more in your retirement account at 65 than if you had started saving $100 per month at age 35. The additional time for your money to compound might make the difference between starting your retirement or having to work additional years. Instead, make your money work for you.