It is never too early to save for retirement. Many people may think they are too young or retirement is years away but, those are excuses and we must come to the realization that retirement may be closer than we think. If we start saving for our retirement too late this could become one of our biggest mistakes. So where do you start:
Beginner’s Guide To Saving For Retirement
1. You want to have a plan. Take a look at your financial picture right now. Sit down with your spouse if you have one or yourself and really think about how much money you will need for retirement. Hopefully, if you have a mortgage that may be paid off but, you will have to pay property taxes. If you are renting and plan to continue, budget for how much your rent will be. Food is an expense that has to be considered. Suppose you expand your family, how much money will you need for food? Vacations is a luxury that you may consider in retirement. How much money can you set aside for this? Credit card bills. Hopefully, they will be all paid off by the time you retire but, you have to think logically. You may still have them. So this is another expense to consider. Emergencies. Yes they happen when we least expect them so have money set aside for this as well. What about other bills like cable, phone, water, home insurance and car insurance. These are all monthly expenses that we must save for.
2. Invest at least 15% of your income into a tax advantages account. What does this mean? Take advantage of that 401K at work. Invest at least what you can up to the match. This is an investment with pre tax money so that is even better because it’s like getting free money. Open an IRA (individual retirement account) account. There are mutual funds that you can start an IRA with. Here are several options for you to try if you are uncertain of where to look:
- Vanguard funds (www.vanguard.com)
- Fidelity (www.fidelity.com)
- Charles Schwab (www.charlesschwab.com)
- Merrill Edge (www.merrilledge.com)
- TD Ameritrade (www.tdameritrade.com)
Banks and credit unions also offers IRA options but, keep in mind the interest rates right now is extremely low.
What is the difference between a Roth and a Traditional IRA?
It’s very simple to explain these difference. The Roth IRA require that you pay the taxes upfront. The Traditional IRA when you take distributions from your IRA you will be required to pay taxes. So this is something to consider. You can contribute up to $6000 a year and $7000 if you are 50+. You will receive a tax benefit if you contribute to an IRA.
Take advantage of an HSA (health savings account). Go to healthsavings.com and start a new account for medical expenses etc. There is no money to start an account but, there is a minimum of $50 for contributions.
In order to make the most for retirement you have to look at your spending habits. Cut down on your cost of living. Save your raises. Don’t overspend. Think of your dream life and what it looks like. One day you will have to retire so why not retire in style.