If you have a typical 9 to 5 job, time will come you will be retiring. It may seem too early, but planning your retirement should start now. With a well-planned retirement, you can enjoy this stage in life and even retire earlier as expected.
Retirement savings are regular monetary contributions deducted from your pay. Such deductions will be multiplied based on the principle of compound interest. These are the rewards you can enjoy after your years of active service and employment.
Whether you have already started saving or not, this post will help you learn how to prepare for retirement. We will be discussing tips to boost your retirement savings. This will go a long way in ensuring you have enough savings to live a good life when you retire.
1. Open an Individual Retirement Account
Opening an IRA is a reliable way of boosting your retirement savings. There are two ways in which you can do this – either through the Traditional IRA or through Roth IRAs.
Opening a traditional IRA account will be your best bet if your income qualifies you for it. This plan is best for you or your spouse. The contributions you make through this option are subject to tax deductions while your investment earnings can grow without tax deductions. It is active until you make any withdrawals at retirement.
Roth IRAs are the best if you can satisfy the phase-out income limits as determined by your status on federal tax filing. Roth IRAs are boosted with your after-tax contributions.
The general explanation is that once you are 59½ years old, your earnings and qualified contributions are free from federal taxes. This is effective as long as you meet specific holding period requirements.
In some cases, contributions are free from state taxes. Companies offering these plans should be able to explain their plan clearly and assist you with ease.
2. Make 401(k) contributions
If traditional 401(k) plans are offered in your workplace and you are qualified, then this is a good option. This plan allows you to make pre-tax contributions.
On the other hand, if it is a Roth 401(k) that is offered, you should remember that this option uses after-tax income. So, before you choose this option, have an idea of your retirement income tax bracket.
3. Make automated contributions
You can get any of the plans that allow you to make automatic monthly contributions. These contributions will be automatically deducted from your monthly salary. You will not be bothered by paying on time.
4. Avoid making only minimum payments on credit cards
This is a financial mistake that you should avoid. If you have a high credit card balance and pay only the minimum payments per month, you will be losing your retirement savings.
This would be in the form of interests paid to the credit card company. The smart thing to do is to try to pay the full remaining amount each month.