Tips to Save for Retirement

Retirement planning can be intimidating, especially if you need help figuring out where to start. But with a few simple tips and arming yourself with a bit of knowledge, you can begin to prepare for your golden years and set yourself on the path to financial security.

Determine When to Start Saving

When it comes to saving for retirement, earlier is almost always better. The sooner you start putting money away, the longer you must benefit from compounding interest and grow your nest egg. Even if you can’t contribute a significant amount each month, any savings will help strengthen your financial future, put you on track for a comfortable retirement, and take advantage of specific tax incentives.

Create a Budget

Creating a budget allows you to track your expenses and ensure you’re saving enough for retirement. When assembling your budget for retirement income planning, consider all your sources of income, such as your job, rental properties, investments, etc. Then, list your expenses to determine how much money you have leftover to save.

Set Up Automatic Contributions and Max Them Out

Once you’ve created a budget, you can set up automatic contributions to your retirement accounts. This will help ensure you’re consistently saving and make it much easier to stay on track. Many employers offer matching contributions for 401(k)s and other investment plans. If your employer is one of them, take advantage by making the maximum contribution possible. If you have the financial ability, it’s a good idea to max out your retirement contributions each year.

Take Advantage of Tax Benefits with a Tax-Deferred Investment Account

Consider the tax benefits associated with specific retirement plans when saving for retirement. The following accounts are the most popular, with good reason:

• Traditional IRA

Traditional IRAs offer tax-deferred growth on contributions, and withdrawals are taxed as ordinary income. Contributing to a traditional IRA often comes with a tax deduction in the year you contribute, which can reduce your taxable income for that year.

• Roth IRA

Roth IRAs offer similar tax benefits as traditional IRAs, but contributions are made with after-tax dollars, and any withdrawals you make in retirement aren’t subject to taxation.

• 401K

Employer-sponsored 401(k) plans allow you to contribute pre-tax earnings into an account and receive matching contributions from your employer up to certain limits. This is one of the most effective ways to save for retirement because you get an instant return on investment. Withdrawals from 401Ks are also usually taxed at ordinary income rates.

• Simple IRA

You may wonder, is a simple IRA the same as a traditional IRA? The Simple IRA is similar to a Traditional IRA but is opened by your employer if they have up to 100 employees. Both you and your employer contribute to it, allowing for more flexibility in contributions and withdrawal rules.

Start Investing

Once you’ve set up your retirement accounts and maximized your contributions, it’s time to start investing. Stocks and mutual funds are two popular options. Stocks invest in the ownership of a company and provide opportunities for growth over time if they perform well, while mutual funds pool your money with other investors’ money to buy a variety of stocks or bonds at once. Bonds offer fixed income streams and typically pay more than stocks per share but require commitment as they generally have long maturities before you may cash out. Although they are now rare in the United States, a coupon bond involves earning fixed interest payments from the bond issuer throughout its lifespan.

Seek Professional Advice

Finally, seeking professional advice when saving for retirement is always a good idea. Retirement plan consultants can help you identify the best retirement savings options and create a plan to help you meet your savings goals.

Saving for retirement can seem daunting, but with some planning and knowledge, you can start on the path to financial security.

Get your complimentary financial plan and portfolio analysis today from Talon Wealth Management.