4 Easy Steps to Help You Save & Prepare for Retirement
The purpose of a retirement fund is to cover your cost of living once you stop working. Without help from an employer-led program, it can be challenging to begin formulating a plan to gather such a stockpile. Fortunately, others have forged the path before you and have provided tips to simplify the journey to post-retirement financial freedom. Here’s how to save for your retirement.
Set a Goal
The first step to any savings plan is to establish a goal. You’ve likely done this before if you’ve purchased a house, car, or any other large-scale, expensive item. You’ve come up with a number in your head, put cash away, and waited until you were ready to buy.
The same goes for your retirement fund, although the savings will take place over a much longer period. Still, start by calculating the total amount you’ll need to retire comfortably. I use an online retirement calculator to input all of my information and goals to come up with the amount I’ll need to retire. You’ll have to know some specific details about your financial standing, such as your current income, savings percentage per year, how much you expect your income to grow, etc.
It’s good practice to check in regularly with the online calculator, too. As you reach savings benchmarks, plug in your information again to make sure you’re on the right track. If your savings goals change, see how much longer you will—or won’t—have to work to make retirement a reality.
Boost Income, Pay Down Debt
Lingering debts will only take away from your retirement savings. In other words, the sooner you can get rid of your debt, the quicker you can funnel that money into your retirement fund.
One simple way to pay off more of your debt as soon as possible is to bring in more cash. You might try asking your boss for a raise, especially if you’ve been around long enough to warrant the extra salary. Jumping from one job to another might result in a heftier paycheck. You could even stay exactly where you are and find ways to make additional cash on the side by investing in property, renting an extra room on Airbnb, selling items online, etc.
Another way to boost your income is to rein in spending. Temporarily cut any extraneous expenses, so more of your expendable income goes toward your debt. You could also find ways to reduce household waste, which could cut spending on utility bills, food, etc.
Choose the Right Place to Put Your Money
In most cases, employees have either a 401(k) or a 403(b) savings plan—the luckiest of all of us have pensions. As someone saving for retirement solo, you’re the second luckiest, as you get to choose the right account to protect and potentially grow your retirement funds. Here are some of the options to consider.
- SIMPLE IRA: SIMPLE stands for Savings Incentive Match Plan for Employees. It allows small business owners to provide a retirement plan for employees, including themselves, so proprietors should take note of this option. The company can match contributions up to a certain percentage, and employees can funnel up to $12,500 per year of their income, more if they’re 50 or older.
- SEP IRA: SEP is also an acronym — it stands for Simplified Employee Pension. This plan is ideal for sole proprietors who want to save for retirement. If this is you, you can put 25 percent of your annual pay or $54,000 per year into your SEP IRA, whichever is less.
- Solo 401(k): If you run a business by yourself or with a spouse, a solo 401(k) could also be the perfect spot for your savings. You can funnel $18,000 per year into the account, and your company can match up to 25 percent of your pay on top of that.
- Simple or Roth IRA: These accounts have much smaller contribution limits, at $5,500 max per year. The Simple IRA takes pre-tax money from your paycheck that the IRS will tax upon withdrawal. A Roth IRA takes post-tax dollars, so you can withdraw them without any additional fees down the line. Considering the pros and cons of these two options is essential—if you think your tax rate will be higher later in your career, go for a Roth account now.
Seek Out Help
Not everyone is a born financial expert. Even if you’re self-employed and thriving in your field, navigating the waters of personal investment, financial growth, and retirement savings can be tough. If you’re still unsure how to save for the end of your career now, seek out the help of a financial adviser.
You might choose someone whose job is to guide clients through such a process, or you might have a loved one who’s good with this sort of thing. Either way, there’s nothing wrong with asking for advice from multiple parties to figure out how you’ll build a nice, healthy nest egg. Who knows? You might be able to pass on the knowledge you gain to someone else in the future.
These four steps aren’t the only ones to take on the path to retirement and financial security. However, they’re four of the foundational ways to prepare yourself for the end of your career—and the beginning of a new, fulfilling chapter. Start saving now, so you can truly enjoy that next stage when it comes.
