Saving money for a rainy day is a rationally sound financial decision one could take in today’s economy. And that applies more than ever when you’re saving up for your retirement.
Whether you are retiring out of your own will or out of necessity, it’s an important step that everyone will have to take at some stage in their career. So, it’s better to take that step as planned as possible.
Here’re 5 practical ways to save money for retirement:
1. Start Saving Early, Cut Unnecessary Expenditures
The key to securing your future is to prepare for the present. Saving up early and investing allows for your assets to generate more earnings and hence more money saved. Your assets’ compound interest helps grow your savings by producing profits that reinvest to generate their own income: A cascading effect that can amass a sizeable turnover!
Moreover, the best way to save more is to spend less, not just make more. By regularly curtailing unnecessary daily costs to a minimum, you can build a more sustainable lifestyle that can further aid your future financial state.
The urge to splurge the cash when getting a raise or a bonus can be irresistible, but the wise decision will always be to think long-term and save it for a rainy day. Invest that extra cash in profitable assets and allow compound interest to benefit your future fortune.
Also, it is a good idea to clearly define your annual budget. Rein in the heavy-hitting expenses and always assign a permanent share of your income to your retirement project.
2. Contribute to Your 401(k) or Your 403(b)
Given that your company offers a retirement plan and a company match, you can use that to your advantage by contributing the maximum percentage of the salary that the company is willing to match.
For instance, let’s say a company can match every dollar of a contribution made by an employee towards the plan. And the limit of the contribution is 5% of the salary. If the salary of the employee is $100,000, then the max investment can be $5,000. The company then matches the $5,000 invested into the 401(k), which is, essentially, $5,000 given to you for free, plus some significant tax benefits.
If eligible for the traditional 401(k), you can contribute from your pre-tax income. A $1,000 contribution to the plan will only set you back by the after-tax amount of $870 if you are situated in the 13% tax bracket.
3. Always Meet Your Employer’s Match
Even if the company matches 50% of your contributions for up to 10% of your salary, be sure to get the maximum benefit and invest the maximum amount possible. By doing so, you’ll get your employer to put in the most amount possible. That will give you the most considerable possible amount of free money for your retirement plan.
If the employer matches 50% of up to 5% of your salary, contribute the whole 5% for maximum advantage.
4. Automate Your Savings
Cash in hand is cash to spend. Alternatively, by automatically transferring your contributions from your paycheck to your retirement savings, you won’t run the risk of casually spending your contributions away on short term investments.
Automating regular deposits to your plan will take the decision-making out of your mind, build up your retirement reserves in the background. It will even provide you with some excellent tax-saving options that you can benefit from.
Many financial institutions and banks offer these automated saving services to assist their customer-base in mapping out their retirement strategies.
Related: 7 Tips to Lower Your Car Insurance Premium and Save Money
5. Health Savings Accounts
The Health Savings Account (HSA) is one of the best options for retirement planners in long-term foresight. Healthcare costs today can reach tear-jerking levels. And as the risk of inevitable medical costs keeps increasing with age, the health savings account will lighten your potential financial blow. The good news is that it can even generate earnings from unused expenses.
In 2021, the HSA contributions for an individual stand at $3,600, while that for a family is $7,150. People older than 50 can even boost their retirement plans by contributing an additional $1,000 on top.
The best part is that it is all 100% tax-deductible. On top of that, you can withdraw your unused money tax-free or allow them to remain invested and grow over time.
