Aim to Save 10%-15% of Your Pretax Salary
The earlier you begin saving for retirement, the better. Saving for retirement is a long-term endeavor that relies on compound interest and portfolio growth in order to create a sizeable nest egg. Even if money is tight, do your best to make small, consistent contributions. As a general rule, you should try to contribute at least 10% of your pretax income, if at all possible.
If you think that amount may put too much of a strain on your finances, then consider the following tips:
- Trim your expenses. Look at your detailed budget and see if there are expenses you may be able to cut. Next, review your loans. Loans typically make up your largest monthly expenses but can also lead to the greatest savings. It’s always a good idea to meet with someone at the credit union to discuss refinancing options. By refinancing, you may be able to save each month significantly.
- Take advantage of all your employer’s benefits. Many companies offer retirement plans, such as a 401(k), and match your contributions up to a certain point. Always maximize these investment opportunities because the matching contributions from your employer are essentially free money!
Limit Your Kids’ College Funds
It’s admirable for parents to save for their children’s future college expenses. However, if you’re not putting enough into your own retirement accounts, you may ultimately rely on your children to support you in your golden years.
Saving for your retirement should be your priority. And no, it’s not selfish! You can always take out loans to help with your children’s college expenses – you cannot finance your own retirement.
While downsizing after retirement is a common strategy, downsizing before retirement is an even better plan. Social pressures lead many to believe that the further you progress in your career, the bigger the house and fancier the car that you need.
However, the truth is, it’s a much better strategy to try to live below your means. Downsizing will free up a significant amount of money as your rent / mortgage payments decrease, along with property taxes, insurance, utilities, and more.
Plan for Taxes
When it comes to planning for retirement, most people focus on saving as much as possible and straightforward diversification strategies. However, one of the most commonly overlooked aspects of retirement planning is taxes.
No matter how much you save, Uncle Sam will always find a way to take his cut. Even if you do not have significant funds to save right now, there are steps you can take to maximize the value of your investments. Whether through tax-advantaged accounts (IRAs) or Health Savings Accounts (HSAs), finding ways to avoid higher taxes in the future should be a top priority of every investor.
1. Consult with your tax advisor for further details about tax implications of IRA savings accounts.