Retirement begins the moment you earn your first paycheck. To many the journey to retirement appears long and winding while in real sense, it is very short. Savings for retirement is one of the noblest assignments that employed people and those in personal engagements have. There is nothing as stressing as approaching retirement age without a single dime on hand. There are things you can never control like the interest rates, stock market returns, the rise in living costs and so forth. You can however with some personal discipline explore ways of saving money for retirement. Below are five options on how to achieve this successfully:
Set smart long-term objectives
When saving money for retirement, you need to consider setting specific, measurable, achievable, realistic and time bound goals. The living expenses when you retire should be pegged on your typical needs as opposed to rules of thumb. It helps to be honest with yourself and project how you want to live when you retire. This will help you in determining the amount of money to keep aside every month in order to achieve that goal. In this also remember to consider the other contributions that you are already making such as Social Security and other voluntary saving schemes.
saving of money for retirement goes beyond putting it in a bank, stocks or fixed income securities. It requires that you be hands on in the way you allocate it amongst the many asset classes such as fixed and variable income assets. Examine the returns of each and every asset class and project it into the future. Engage the services of a professional where necessary. Remember the investment mantra that goes, ‘never put all your eggs in one basket’.
Save and invest as much as you can in the early years of your retirement plan
It is advisable that you save sizable portions of your income in the earliest stages of your savings plan. This will ensure that you accumulate your wealth early enough while capitalizing on the power of compounding. In the early years, it is also assumed that you are not only a risk taker but your needs and responsibilities are also not as high. As you age, health concerns and the risk averse tendency may make you sensitive to investments and savings.
Tax-efficient withdrawals save your money and lengthen your nest egg
It is normal to find yourself having some accounts that are tax advantaged while others are taxable. For the taxable accounts, it is important that you have a tax payment plan. Such a plan will lessen your tax burden while at the same time enable you pay much less than you owe in arrangements such as an offer- in-compromise. In the event of any monetary need, it is recommended that you withdraw the money in the taxable accounts first while you give those in the tax advantaged accounts time to grow.
Mind the eroding power of inflation
Inflation by design lessens the purchasing power of your savings. To prevent yourself from its eroding power, ensure that you save your money in accounts such as fixed deposits accounts which have a rate of interest higher than that of inflation. This will assure you of a real growth in your nest egg over the period to retirement.