With so many older people unable to retire, it’s more important than ever to prepare yourself for your own retirement. You don’t want to be 70 years old and still working, do you? Pensions are a thing of the past and future Social Security benefits are in limbo, it’s up to you to take command of your retirement savings. Here are a few things to consider so you can retire when you want.
The first key is diversification. It’s not only a great strategy for the stock market, it’s great for your retirement plan as well. You should be invested across different asset classes and indexes as well as well as among stocks, bonds, real estate, etc. A balanced portfolio is a good portfolio. Avoid taking too much notice in the ups and downs of the market; over the long haul, they will give you good returns.
Moreover, you should diversify the plans you contribute to. Having both a traditional 401(k) and a Roth IRA provides you with more balance. You see an immediate tax break when contributing to the 401(k) along with tax-deferred savings. With a Roth IRA, you don’t get the tax-break but withdrawals (inc. earnings) during retirement are tax-free.
It seems obvious, but the earlier you start saving, the better off you will be. An important thing to remember is the Rule of 72. You take the interest rate you think your investments will earn and divide that number into 72 and the resulting number is the years that your money will double. Therefore, if your money earns 7.2% it will double in ten years. If you put $5,000 in at age 25, in 40 years it will multiply by 16 giving you $80,000 (inflation not withstanding). Ten years after that, you’ll have $160,000. If you wait to contribute, you’re basically halving your retirement savings every decade.
Next, pay attention to the benefits your employer offers. We talk about the employer match all the time. Make sure you contribute enough to your 401(k) to receive the full match. If not, you’re throwing away free money. Also, take advantage of any services offered by the plan such as financial planning and online tools to better manage your money.
Don’t forget to have a plan and figure out how much you’ll need to retire with. People are living longer so they need more money when they retire. You need to find a number that you can live off comfortably. You don’t want to outlive your savings. Further, don’t rely on Social Security. As said, who knows what will be left when you retire plus you will only get the full benefits if you wait longer to retire.
Lastly, let your business acumen or special expertise help you save more. There are plenty of alternate investments that is permitted by the IRS. These include investing in a small business, buying real estate, purchasing precious metals, etc. A self-directed IRA will help invest in these and so much more. If you are self employed, look into a Solo 401(k) plan to save for the future.
The tax experts at the IRA Financial Group specialize in individual and small business retirement plans. Contact them at 800.472.0646 to figure out the best plan for you to retire when you want to. Be sure to like us on Facebook and follow us on Twitter too!