Although retirement may be years away, the steps you take today to plan and save for it can make a big difference in your financial security decades from now. Here are 10 general tips that you may find helpful when saving for retirement. For specific advice about planning and saving for retirement, please consult your financial professional.
- The earlier you start saving, the easier it may be.
That’s because the earlier you start, the more time your savings have to potentially compound and the less money you may need to contribute to reach your savings goal. Ideally, you should begin saving for retirement as soon as you begin working. But if you haven’t started yet, the next best time to begin saving is generally today.
- Know how much to save each year.
Saving 10% to 15% of income each year may be an appropriate amount for many people. But keep in mind that the percentage that is right for you will depend on many factors, including your age, the amount you’ve saved so far, and the other sources of retirement income, such as pensions, that may be available to you in retirement.
- Take advantage of the retirement plan at work.
If your employer offers a retirement plan, it’s usually the first type of account to use when saving for retirement. Workplace retirement plans offer convenience and tax advantages that may help your savings grow faster. And with some retirement plans, your employer may match a portion of the money you contribute to your account.
- IRAs are also a great option.
IRAs offer similar tax benefits to workplace retirement plans, making them a good choice for individuals who do not have access to a retirement plan at work or who have reached the annual contribution limit on their workplace retirement plan and want to save additional amounts.
- Not employed? Consider a spousal IRA.
Normally, you can only contribute to an IRA if you earn taxable compensation, such as wages. However, you may still be eligible to contribute to an IRA even if you don’t have taxable compensation as long as you are married, you file a joint tax return, and your spouse has taxable compensation for the year.
- Self-employed? Start your own retirement plan.
If you are self-employed or own your own business, you can start a retirement plan for your business, which is generally easy to do and may allow you to contribute considerably more income each year than a traditional or Roth IRA will allow.
- Avoid tax penalties on early withdrawals.
Money that you withdraw from a retirement plan or IRA before age 59½ is generally subject to a 10% tax penalty for an early distribution. There are exceptions to the “age 59½ rule” that may allow you to access your savings earlier without penalty.
- Be smart about your savings when changing jobs.
If you have money in a workplace retirement plan, you’ll generally have four options for that money when you leave the company. You may be able to leave it where it is, move it to your new employer’s retirement plan, move it to an IRA, or cash it out. Each option has its pros and cons, which you should explore fully before you make a move.
- Use regular accounts to save even more.
Although retirement plans and IRAs offer tax benefits, they also set limits on the amount you can contribute each year. To save additional amounts for retirement, use regular taxable investment and savings accounts. Regular accounts do not have annual contribution limits and generally offer more flexibility regarding withdrawals.
- Seek professional advice.
Planning how to fund a retirement that may stretch for decades can be complex. Fortunately, help is available. Please contact your TBC Advisor for advice regarding saving for retirement.
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