5 Best Ways to Save for Retirement
by Gabriel Lewit
Retirement planning can be an uncomfortable topic to discuss, but it’s far less uncomfortable than the alternative – running out of money when we’re no longer able to work full-time.
You likely already know the most important retirement plan maxims: invest early, avoid excessive fees, and let the power of compound interest work for you. Combine those three maxims with these ways to boost your retirement savings.
1) Start saving for retirement now.
Inertia is powerful. Remember your high school physics class? Bodies in motion tend to stay in motion and bodies at rest tend to stay at rest. It’s this same powerful force that prevents so many people from actively saving for retirement. Taking that first step is difficult, especially when the task seems so daunting.
Putting off saving for retirement until tomorrow is a good way to fall into a perpetual trap of delaying. If you’re behind your peers and playing catch-up, the notion to put it off will be even stronger. Yes, the best time to start saving was probably 10 or 20 years ago. But the second-best time is today.
Once you get inertia moving in your favor, you’ll be surprised how quickly you can build up steam.
2) Take advantage of retirement accounts.
The federal government has given retirement savers some tax advantages when investing in the proper accounts. If your employer offers a traditional 401(k) plan, that’s a way to move money from your paycheck to your retirement account without involving the IRS. Money and investments saved in a traditional 401(k) are taxed at withdrawal, meaning you won’t pay any taxes until you tap the cash in retirement.
Plus, many employers offer a 401(k) match where they put up an equal contribution if you enroll in the program. Having your employer match a certain percentage of your 401(k) savings is one of the only forms of free money around – don’t let it go to waste!
If you’re looking for tax-free growth, then a Roth 401(k) or Roth IRA may be the proper vehicle. IRAs are set up by individuals, so you don’t need an employer sponsor to open one. Tax-sheltered accounts like IRAs and 401(k)s reduce your tax burden, which means more money goes into your pocket instead of Uncle Sam’s.
Traditional IRAs follow the same rules as traditional 401(k) accounts, but Roth IRAs and Roth 401(k)s are funded with cash that’s already been taxed. Since taxes are paid upfront, assets in a Roth IRA/401(k) grow completely tax-free. Income and contribution limits do exist for these types of accounts though, so always check with an advisor to see which type is best for you.
3) Use windfalls to boost savings rates.
Did you receive an unexpected bonus at the end of last year? Have a grandparent leave you some cash or securities? Or maybe you finally won your annual March Madness pool and now have a sudden influx of cash at your disposal. When an unexpected windfall enters the picture, you’ll probably feel a strong desire to treat yourself. After all, if you got an extra bonus for working hard, don’t you deserve a reward?
Go ahead, use some of that windfall on a nice steak dinner, but put the rest of it into your retirement account. By doing so, you’ll make it a lot easier to hit your annual savings targets (or maybe even exceed them). Let the power of compound interest turn your nice windfall into a savings enhancer. After all, you won’t really miss it if you weren’t expecting it, will you?
4) Automate, automate, automate.
Technology has made it easier than ever to get a hold on your personal finances. You can deposit a check, track spending and saving, and even run a small business all through your smartphone. Consider using your laptop or smartphone to force yourself to save.
“Pay yourself first” is a mantra preached by many personal finance gurus, but it’s sometimes difficult to look at bills or debts and still have the desire to focus on yourself first. Here’s where automation comes in. By setting up an automatic withdrawal from your bank account to your retirement account, you take that emotional response out of the picture. Retirement saving is now robotic – you don’t even think about the outgoing money each week.
5) Set goals and work to meet them.
Saving for retirement is about discipline and you won’t stay focused if you set vague goals or random milestones. You want a financial plan with concrete, achievable goals, like saving 10% of your income per year or paying off $5,000 in credit card debt within 12 months. If your goals are nebulous like “get out of debt” or “save for retirement”, you won’t know when you’ve reached them or if you fall behind.
Put numbers and dates into your goals and give yourself the motivation to hit each milestone. No, it won’t always be easy, but ask anyone who likes to run races: when the finish line is visible, you often find an extra gear you didn’t know you had.
Retirement Planning with SGL Financial
These five retirement savings strategies can jumpstart your retirement funding, but to reach your retirement goals, you’ll likely need a professionally-designed retirement plan. That’s because there’s truly no one-size-fits-all approach to retirement saving. Each person and family has different needs and expects different things in their golden years.
That’s why SGL Financial offers detailed, tailored financial plans, informed by experience, knowledge, and an appreciation of each individual client. Retirement planning with SGL Financial means working with fiduciaries you can trust, who guide you closer to your retirement goals.