If you’ve been pondering retirement and what you’re going to do in your golden years then you’ve probably come up with a few ideas. The most common strategies available are a 401k plan, pension plan, IRA’s (Roth or Traditional) and investing in the stock market. For a few their strategy might be relying on social security. Hopefully this isn’t yours. And then there is a high percentage that doesn’t have any of these because they’re projected to be working till their last day. Out of these some don’t have a choice. But for the rest, it’s because they have no plan. Hopefully you’re not in this last group.
If you were in the first group, congrats and enjoy saving. If you’re not, it’s not too late. Most likely you’re not too familiar with the magic compounding interest does with anyone’s savings. In 30 years you could have a million dollars stashed away if you started saving three hundred dollars a month right now and consistently got 8% returns. This factors in 3% for inflation too. It’s completely possible. It’s time to take action for your retirement. Putting it off until tomorrow is like planning to fix that oil leak once mechanics start working for free. Your golden years will come up unexpectedly just like your car will break down on the highway in the fast lane.
Times are tough and putting aside three hundred dollars a month is asking for a lot. So maybe you can only afford one hundred and fifty dollars, or just fifty. Maybe you’re trying to get out of debt or set up an emergency fund for the millionth time. Start off small and let it grow. It’s crucial that you know how compounding interest works. Once you do you’ll be motivated to start saving.
Take Action for Your Retirement
Learn and understand how retirement accounts earn interest
“Compounding interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” –Albert Einstein
Eloquently said and hopefully you understand what he means. If you don’t or need a refresher read up on Compounding Interest. Each years gains build on the previous years gain.
Learn Your Portfolio Options
To make compounding interest do it’s magic and work for you you will have to invest. Start with a 401k, Traditional or Roth IRA portfolio. Your employer most likely has a 401k plan and company match. If you aren’t taking advantage of this then you’re losing free money.
Portfolio’s Asset Allocation
Once you create one of these portfolio’s you’ll need to invest in stocks, mutual funds or index funds. Target Funds are one of the best for those who want little maintenance. You can also look into stocks that offer dividends (free cash). The goal is to keep it balanced. If you’re young you can take more risks and as you get older more conservative.
Have a Dollar Target – Keep it Realistic
Use one of our financial calculators and figure out your goal and how much you need to be saving each month to reach it. Don’t try to get all fancy and project yourself to be living it up like the Pharaoh’s of old who were buried with mountains of golden treasure. Figure out your current budget and go from there.
Understand Tax Implications
Traditional IRA’s are pre-tax which means you pay tax upon withdrawal. Roth IRA’s are post tax so when you are eligible to withdraw you don’t have to pay a tax on it or it’s earnings. I read a report somewhere that said the average 20 somethings don’t know what income tax bracket they’re in.
Consider a Part-Time Job
I swear home depot is the favorite hobby/job for males over 50. Or maybe I just spend too much time there.
In my golden years I plan to quit the 9-5 and take up a hobby that pays.
Save now and as much as you can.
If you’re 20 that means start saving now. If you’re 50 that means start saving now. Whatever age you are at it is time to take action for your retirement.
It’s Not Complicated.
Featured image by http://dribbble.com/cedrichohnstadt