After you’ve been working hard all your life, you definitely need a well-deserved rest. In this way, reaching retirement age may seem like the beginning of your golden years. But unfortunately, it often turns out to be the time when individuals face financial hardships and can’t maintain their usual way of life. Therefore, it’s better to think about how to save for retirement before the moment comes.
Most people have no idea how much money they need for retirement. However, most of them know for sure that social security benefits won’t be enough for a comfortable old age. Therefore, retirement savings is something you need to have to ensure your dignified twilight years.
Retirement planning plays an important role in your financial stability in the future. Whether you’re 20, 30, or even 50 years old, there are still some ways to build a retirement fund. Wonder how to reach your retirement savings goals before it becomes too late? Here are some useful tips from trusted financial advisors, writers, and experts.
You may think that you still have a lot of time left when you’re 20 or 30. However, it’s of utmost importance not to miss the moment and think about your old age before you start to get retirement benefits so as not to be left with nothing. But it’s not always necessary to turn to a certified financial planner to decide on your retirement goals and start reaching them. We can gladly share the knowledge with you for free.
Our invited experts:
Kerry Vetter, a financial advisor and expert of 1F Cash Advance, specialises in wealth management.
Kat Tretina, a freelance writer and certified financial and student loan counsellor.
Alex Gaily, a personal finance journalist of NextAdvisor, covering trends, news, and ideas on money.
Carrie Pallardy, a contributing writer of Money, covering practical insights for managing personal finance.
Emily Miller, a managing editor of Annuity and an award-winning journalist with more than 10 years of experience as a researcher, writer, and editor.
A sufficient retirement fund is not a thing you can build within a year or two. Therefore, Kerry Vetter urges you to start saving early, so you can set aside more money and enjoy all the benefits of compound interest. The sooner you start, the better. It will be great if you begin doing this from the first paycheck to save enough money before you reach full retirement age. “When you’re at the age of 30, it’s great to have at least the amount you earn annually in savings,” – she says.
At the same time, Kerry knows it may be tough not only to build a financial cushion but also not to dip into your savings when emergencies happen. Your retire savings should be inviolable. Otherwise, you risk spending most of what you put aside on unnecessary purchases and find yourself without retirement savings at some point. It’s better to take out a cash advance loan, turn to your family members, or consider alternative ways of financing rather than spend money saved for retirement. Remember that you can get a loan for whatever purpose, but no one will give you a loan for retirement when the moment comes.
If you want to save for retirement, it may require you to start budgeting money and stick to some new rules. Therefore, Kerry offers a few simple tips that can help you make your retirement contributions insensibly.
When you have a goal and take the first step toward budgeting, it’s time to determine how much money you should set aside each month. Kat Tretina advises determining the retirement income you need and dividing it equally by the number of months you have left. While making retirement planning, don’t forget about medical costs and other emergency expenses you may face. To make things easier for you, Kat offers a 50/30/20 rule you can use to plan your budget. This rule involves that you split your monthly income as follows:
Now then, what part of your paycheck should you save for retirement within that 20% category? Kat recommends saving between 10% and 15% of your income.
Sometimes instead of saving money you need to let it work for you. Alex Gaily believes that investing is a great option that can help you reach a better financial future. Although market fluctuations can bring the risk of losing money, sometimes investment may be a great way to increase your nest egg in the long run.
Also, Alex states that investments are not always associated with risks. They may take a completely different form than we typically imagine. Answering the question, “Where to invest retirement money without a high risk?” Alex suggests the following options.
Invest in a Small Business
When you start your own business, it gives you the potential to ensure your comfortable old age. However, it’s also hard work you need to do every day to make your business develop and grow before it pays off. But it’s optional. You can either be a business owner or a silent partner and get small profits monthly or annually while your money works for you.
Invest in Real Estate
Real estate investment is not always about brokerage accounts and mutual funds. Keep in mind that owning real estate is also an investment strategy that comes with plenty of benefits. You can buy undervalued real estate, make all the required home improvements, and get a profit from selling it at a high price. Also, one of the most popular options is becoming a landlord of a rental property you own.
A brokerage account allows you to invest in a wide range of stocks. Undoubtedly, investments that have a higher risk, such as individual stocks, come with higher earnings than low-risk ones like certificates of deposit. At the same time, the risk of losing money also reduces. Although low-risk instruments are more conservative, they offer stability over the long term. And that’s exactly what you need when it comes to retirement planning.
It’s not always enough to make the right decision on saving for retirement. Carrie Pallardy strongly believes you need to do it wisely to succeed. And choosing the right retirement account is one of the key steps toward being efficient. Actually, Carrie states that retirement accounts are both a tool that helps people reach their retirement goals and a system that leaves them confused when they first encounter it.
The main thing you need to keep in mind is that there are several types of retirement accounts you can turn to, so you’re not limited to one option. Each of them will have different retirement account fees and early withdrawal rules. So, let’s take a closer look at available options that can help you get the most out of your savings.
SIPP (an equivalent of 401 (k) account)
A self-invested personal pension (SIPP) is an equivalent of 401(k) accounts that are pretty popular in the US. It differs from an employer-sponsored retirement plan as it has an expanded list of investment options approved by the country’s Her Majesty’s Revenue and Customs (HMRC). The participants of SIPP set aside a part of their pre-tax income so they can invest it tax-advantaged in a variety of permitted assets, including stocks, bonds, and ETFs. Like 401 (k) accounts, SIPP doesn’t require you to pay income taxes when you make a direct deposit. You will start to pay taxes only when you finally take out money from it. You can start withdrawals when you reach the age of 55. SIPP allows you to withdraw about 25% of your money tax-free.
ISA (an equivalent of IRA)
An individual savings account (ISA) is an option that is similar to IRA that US residents can access. However, there are some crucial differences between these two:
An ISA can be opened when you reach the age of 16. The best options for saving for retirement with ISA are Stocks and Shares ISAs and Lifetime ISAs.
Consider Target Date Funds
In the UK, a target date fund is a relatively innovative option. It allows a team of pension savers who are all aiming for the same retirement date to keep their savings in a single investment fund. Although this option typically has a low cost, it can suit young workers who have a long investment horizon. Target date funds usually provide growing investment returns in the long run.
Summing up, the money accumulated in a SIPP can only be used after the age of 55 (57 from 2028). 25% of your pension account may be withdrawn tax-free, and the remaining 75% is subject to income tax. As you can access the money in an ISA at any time without incurring any tax liability, ISAs are a good medium-term solution, while SIPP can better meet your long-term goals. If you’re a young worker, consider saving with the help of target date funds.
Although having a tight budget is not a barrier to building a retirement fund, Emily Miller believes you need to improve your financial situation in advance to avoid financial hardships at retirement age. Emily states that it may be pretty hard to save money on a low income, although there are some ways that can work for you. However, it will not be a sufficient amount you can use to cover your regular retirement expenses.
Here are some ways Emily suggests to help you build a better financial future.
Pay Attention to Your Education
Reports from the UK Office of National Statistics show that education has a great impact on your future income. It’s never too late to return to school. Nowadays, you can even study online to get a skill that will raise your income to a new level. Your education is the best investment in your future financial well-being.
Turn Your Hobby Into a Source of Extra Income
You can find a way to use your creative skills or hidden talents to make money. Just spend more time developing them and let people know about what you can. There are several ways to sell your art on the Internet if you’re creative. You may connect with potential customers quickly and easily via online communities and social networks. Moreover, visiting nearby fairs, farmers’ markets, or other local events can give you more financial gain and make you famous in certain circles.
This option can not only save you money but also helps you gain new skills you can use to earn more in the future. It’s never too late to learn something new and try to make money with the help of your mastery.
Whatever your age or financial situation is, you need to think about how to save for retirement in advance and choose an efficient way that fits your current situation. Retirement saving is the only option that can help you maintain a usual way of life while retired.
Although there are various tips for people of any age, the sooner you start, the more you can save in the end. After you make a decision, you need to determine how much to save for retirement and calculate the amount you should save each month. After all, choose the right savings plan for retirement or consider other ways of retirement investment offered above. Also, remember that tips on increasing money can improve your financial situation and help your retirement savings grow.
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