Are you familiar with a 401(k) or an IRA account? If you’re not, then you might not have done a lot of retirement planning.
Even if you think retirement is so far away, you should take a look at your finances now to ensure you’re fully prepared when the day comes.
In this guide, we will offer you 10 tips to help you plan for retirement.
1. Start Now
Depending on your age, retirement planning might not seem as important now. It’s often not a priority to save for retirement when it seems like it’s lightyears away.
However, the sooner you start planning for retirement, the better prepared you’ll be.
Beginning to save a smaller amount in your 20s will ensure your money will grow over more time, rather than making larger contributions in your 30s or 40s.
If you’re past that age, start making it a priority now, so you have a better chance of hitting your goals.
2. Pay Down Your Debts
With the average American having $63,000 in debt, it might be difficult to think about saving for retirement with so much debt over your head.
People who have large amounts of debt such as student loans, mortgages, or credit card debt tend to contribute less to their savings and 401k accounts.
While it’s not impossible to save for retirement while having debt, efforts should stay focused on paying down debts.
Focus on paying faster higher interest credit cards, while giving minimum payments on lower interest accounts.
3. Stay Away from The Lifestyle Creep
After years of living on a tight budget due to a starting salary, it might seem like a good idea to splurge a little.
Afterall, you worked hard for your money and deserve to treat yourself. Financial advisors refer to this as the “lifestyle creep.”
If your plan is to have $1 million saved by the time you retire, living a lavish lifestyle because you got a raise might not help you get there.
Your goal should be to spend your money carefully. This doesn’t mean you should feel deprived or stop enjoying life.
4. Set A Budget
If you’re serious about retirement planning, then you should know where every dollar is going to. Creating a budget and sticking to it, can help ensure you know where the money is going to every month.
Sticking to your budget will help you properly distribute your money and find more cash under the cushion to save for retirement.
Without a budget, you might be unaware of how much you’re spending in each category and missing out on opportunities to save.
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5. Contribute to Your 401(k)
It’s important to make contributions when your employer offers a 401(k). If you’re fearful the money taken out of your taxes and into your 401(k) will make a dent in your monthly budget, remember the contributions get taken out of your paycheck pre-tax.
If you contribute $100 per pay period, since it will be taken out pre-tax, then you will only have $85 taken out of your check.
6. Employer’s Match
Don’t pass out on an opportunity to take full advantage of your employer’s contribution to your 401(k). Some employers will match a percentage to your 401(k) based on your salary. Often times the limit they will contribute each year is 3% of your annual salary.
Depending on the employer, they might match up to 100% of your contribution. If this is the case then you must contribute the same amount of your employer to get the full benefit. For example, if based on your salary your employer contributes $1500, then you must also contribute $1500.
In some instances, employers only match 50% of your salary, then you must contribute twice as much as your employer to take full advantage of the benefits.
Since the limit per year will still be 3%, then you should contribute 2250 in order to get your employer to match the contribution.
7. Open an IRA
If you’re really worried about building your retirement funds, on top of your employer’s contribution you can open an individual IRA.
You can choose from a traditional IRA or a Roth IRA. Both types are a great way to save and invest for retirement, but they vary in the way they handle the taxes.
In traditional IRAs, your contributions are all taxed deductible, which means when you take your money out for retirement, you will have to pay taxes.
In Roth IRAs, you pay taxes up front since your contributions are not deductible. It also means your retirement contributions will remain tax-free.
8. Pay off Your Mortgage
If you want to head into retirement worry free, and with fewer expenses, you might want to focus on making sure you pay off your mortgage.
In your golden years, your house is more than just a house. It’s the place where you will enjoy your retirement.
Having your mortgage paid off before you retire might bring you a sense of accomplishment and peace of mind.
9. Account for Travel Expenses
While most people want to wait until they’re retired to travel, the expenses could add up significantly.
It’s recommended to plan which trips you can afford to take during retirement, and which can be taken before retirement.
Some trips might be more expensive and need more accommodations once you’re a senior than when you’re younger.
Not waiting until retirement to do all of your travel, will ensure you don’t overspend on travel.
10. Work Longer
If you don’t think you’re as prepared for your retirement planning, you can always choose to work longer.
Depending on your health and the industry you work in, you might choose to work a few more years before retiring.
Working a little bit longer will ensure you continue to build your retirement fund until you’re ready.
Make Retirement Planning Easy
Retirement planning might seem like it’s so far away you don’t think about it now. However, making a few money decisions could ensure you feel secure during your retirement.
If you enjoyed these tips and would like to learn more about managing your money, visit our blog.