Ways to Save for Retirement
We all know we’re supposed to save for retirement. But that’s often easier said than done. There are many reasons for Americans’ pitiful savings rates, including stagnant wages and an increasing cost of living. Our own behavior plays a role as well. How can you save more in a time when every dollar seems to buy a little less? Consider the suggestions below:
Get a budget and reduce spending: If you’re looking to save more, the first place to look is your current budget. Cutting spending where possible will free up more money to set aside for the future. While some of your expenses are fixed — most of us need to spend money on housing, food, and transportation, for instance — others are flexible. Spending a little less on dining out, canceling subscription services, or choosing a cheaper cell phone plan could free up $50 or $100 in your monthly budget to dedicate to retirement. That may not sound like a lot, but it’s a good place to start.
Get your match: If you’re lucky enough to work for a company that offers a 401(k) plan and matches employee contributions, make sure you take advantage of it. Not contributing enough to get your match is essentially turning down free money.
Max out your 401(k) plans: In 2019, most people are allowed to contribute up to $19,000 a year to their 401(k) plan. Not everyone can afford to save up to the max, but whatever your income, you should contribute as much to tax-advantaged retirement accounts as you’re able.
Contribute to an IRA: If you can’t contribute to a retirement plan at work or you want to save even more for retirement, consider setting up an IRA. Assuming you meet certain requirements, you can save up to $6,000 a year in these accounts.
Contribute to a health savings account (HSA): For people who are really intent on maximizing their retirement savings, HSAs can be an option. HSAs are primarily intended as a way for people who have high-deductible health plans to save for medical expenses. But any money not used for healthcare costs now can be used to pay for healthcare in retirement.
Make catch-up contributions: Once you reach age 50, you’re eligible to make catch-up contributions to 401(k) plans and IRAs. You can contribute an additional $6,000 a year to your 401(k) plan and an extra $1,000 a year to your IRA. If you consistently make those contributions over the next 15 years (assuming you retire at 65), you’ll have an additional $105,000 for retirement — and that’s without considering any growth in your investments.
Save in taxable accounts: Most people focus on saving for retirement in various tax-advantaged accounts, like a 401(k) plan. But if you can’t save for retirement that way, or you want to save even more, consider saving in more traditional ways. You can put money in a well-diversified investment account, CDs, bonds, or other savings vehicles. One advantage of putting some of your money in nonretirement accounts is that you won’t have to worry about things like mandatory withdrawals when you reach age 70½.
Take enough risk: Saving as much as possible is key to having a healthy retirement portfolio. But squirreling away dollars alone isn’t enough. To really make the most of your money, you need to invest it. That means investing more in stocks when you’re younger and gradually dialing down risk as you get closer to retirement. Being smart about risk is essential to meeting your retirement savings goals.
Don’t take early withdrawals: When times get tough, people often turn to the money they’ve set aside for retirement to close the gap. But if it’s at all possible to avoid touching that cash, you should. Not only will you fall behind on your savings — creating a gap that is nearly impossible to make up — you’ll also get hit with penalties. Unless you need that money for a true emergency, like you’re facing the prospect of losing your home or a major health crisis, leave it alone. You’ll be glad you did so when the time does come to stop
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This newsletter was prepared by Integrated Concepts Group, Inc. The opinions expressed in this newsletter are for general information only and are not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. The views expressed are those of the author and may not necessarily reflect those held by PlanMember Securities Corporation. Material presented is believed to be from a reliable sources and PSEC makes no representation as to it accuracy or completeness.