Whether you’re new to the workforce or you’re almost at retirement age, there’s always something you can do to grow your nest egg. Here are ways you can save money for retirement.
1. Start saving NOW
The sooner you start, the more interest you will gain from your savings. That is what you call the power of compound interest. Don’t worry about starting too early or that you’re already too late. There is never a better time to start saving for retirement than now. If you have extra cash from your income, use that towards your retirement fund.
2. Save a percentage of your income
How much you put towards your retirement depends on how much you’re earning and how long you plan to work. The minimum recommended amount is 15% of your paycheck but if you can save more than that, do it. Make it a habit to save and it will become second nature. It also forces you work harder and find other ways to earn money.
3. Automate your savings
If you find it hard to save money for retirement, consider automating it. Call your bank and have them automatically take out a specific amount from your checking account to go towards your retirement account. It takes your mind away from the pain parting with that money (even though you’re not really losing it) and makes you less likely to take it back since there is a fee for taking out money from your retirement fund.
4. Borrow only payday loans that you need
Payday loans are a great option if you don’t want to touch your retirement fund. If you do decide to get a payday loan, shop around for the best rates and only borrow what you actually need. This will help protect your retirement money while still having that extra backup to pay for emergency expenses.
5. Put your money on simple investments
When it comes to investing your money, simpler is better. Sure, stocks give you bigger returns but the risk is higher too. You’d have to spend a lot of time researching stocks and industries to make sure you are putting your money in the right place.
Instead, why not go for slow but sure investments like index funds. You’re not gonna see big returns everyday but you’re practically getting all the returns available since these funds buy every stock or bond in a specific market.
6. Match your employer’s maximum contribution
If your employer offers a match on your contributions, take advantage of it. This means that your employer contributes a certain amount to match what you’re putting into your 401(k). Of course, this all depends on their matching algorithm. The average scenario is that your employer contributes 50% for 6% of your salary. Some companies though are very generous and will match 100% but only to a certain percentage or amount.
So how does it work?
Let’s say you earn $60,000 per year use 3% of your salary to go towards your 401(k). That means you are putting 1,800 on your retirement fund per year. If your employer matches your contribution by 50%, this means that they will pay 50% of your retirement contribution ($900).
Of course, this amount can go higher depending on the percentage you are paying and what your employer is offering so the best way to really benefit from this is by paying the highest percentage available. It’s essentially free money that will grow for the years to come.
7. Choose the right IRA for you
If your employer does not offer retirement plans, you can set up your own I.R.A., Roth I.R.A. or solo 401(k) plan. Each type of account behaves differently but the biggest difference of the three is the tax you pay.
With a ROTH IRA, you pay taxes before putting it in the account but you don’t pay taxes anymore whenever you withdraw. For I.R.A.s, you can get a tax exemption if you contribute a certain limit. With 401(k)s however, you pay taxes once you withdraw the money during retirement.
There are also specific retirement accounts such as SEP IRA for self-employed individuals. Choose what’s best for you and be consistent with your contributions to avoid paying hefty fees.
Have other suggestions for saving money for retirement? Share your thoughts in the comments