Saving for retirement may seem like a challenge at first, but in fact, it’s simple if you follow a few basic tips. By employing a few strategies today, you will be able to achieve real wealth by the time you reach retirement. Here are a few fool proof retirement saving tips we put together from the President of IRA Financial and a leading voice in the self-directed retirement industry.
The Pillars of Retirement Saving
When thinking about saving for retirement, consider these three steps to successfully achieve your goals:
- Start young
- Make consistent contributions
- Trust the process of tax-deferral
Find Help: When you begin saving for retirement, you are likely young and just starting your career. Your financial knowledge may not be at its best. Don’t be afraid to ask questions. Talk to your coworkers, your HR department and friends and family who may be more knowledgeable on retirement saving. There are also online tools that you can use, such as a retirement saving calculator.
Choose a Retirement Account: The easiest option when choosing a retirement plan is to use your work-sponsored plan. This will most likely be a 401(k) qualified retirement plan. If your company does not offer a plan, you can establish one for yourself. You have many options to choose from, so make a wise choice. The Roth IRA is a great retirement plan for Millennials because Millennials have so many years to generate tax-free income and gains. A Roth IRA is also funded with after-tax money, meaning you pay taxes now. Since you are just starting your career, you are likely earning less money and in a lower tax bracket than when you’re ready to take a qualified distribution several years down the road.
Just Get Started: You’re young and you’re in the best position to save for retirement and generate wealth. The important thing is to get started. Don’t delay even a few years. You can risk thousands if you start at age 23 instead of age 22. Saving for retirement does not require much sacrifice – you may find waiting to be your greatest burden! If you don’t think you’re currently in a financial position to save, you’re wrong: just start by saving $5 a day.
Make Consistent Contributions
Whether you’re saving in a Self-Directed IRA, Roth IRA or your company’s 401(k) plan, make contributions and be consistent with them. If you’re contributing to you work retirement plan, then the company has likely setup an automated system where the contributions come out of your paycheck. Good! The hardest part is already done for you. If your company has a matching plan, start contributing the percent your company will match. In a few years, when you feel more financially secure, go ahead and increase that contribution.
If you established a retirement plan on your own, automate your retirement savings so you stay consistent. It’s also a good idea to use a retirement income calculator so you know the best amount to contribute based off your annual income.
Trust the Process
Our final retirement saving tip is to trust the process. Please refrain from rolling your eyes, because this last pillar is very important. The U.S. retirement system works because it is based off the power of tax-deferral. Essentially, this means your money will grow tax-free, ultimately growing faster than if it were taxed. The numbers don’t lie, which we will illustrate here:
Let us assume you stare saving at at 21, saving just $5 a day.
Rate of return: 8% (a pretty conservative number)
Annual contributions: $1,825 (also conservative)
Tax rate: 25%
By the time you reach 70, you will have $1,045,306. And that’s with conservative numbers.
Trust the U.S. retirement system. Don’t rely on social security to keep you afloat during retirement, because it simply isn’t enough. We may say this a lot, but by following these fool proof retirement saving tips, you’ll be able to enjoy retirement rather than work through it.