When planning for your retirement, you want to have as much money as possible saved up to live out your golden years. If you plan properly, you should be more confident about being able to afford your expenses and have extra spending money. It is difficult to estimate how much you truly need in retirement. Having a large retirement savings can reduce a massive amount of stress. For 5 must-know tips to retiring, keep reading!
Time is Your Best Friend
Time can be the key to building retirement savings. While starting out in your career, it is difficult to allot money towards your retirement savings, although these may be the most important contributions that you can make. If you are contributing in your 20s, you have several decades for your money to potentially build. Make sure you keep your retirement savings in a high-yield savings account so your savings can compound over time.
Max Out Your IRA Contribution Limits
IRAs can provide either tax-deferred or tax-free growth depending on whether you have a Roth IRA or a Traditional IRA. In 2021, the maximum annual contribution to an IRA is $6,000 for people under age 50 and $7,000 for people age 50 or older, due to the catch-up contribution. Utilizing a Roth IRA for your retirement savings can allow you to avoid paying taxes on the capital gains of your asset. Distributions from traditional IRA's and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59 ½, may be subject to an additional 10% IRS tax penalty.
To qualify for the tax-free and penalty-free withdrawal or earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.
Use a Rollover IRA
As you change jobs over your career, you do not want to leave your retirement investments behind. By using a rollover IRA, your savings in your employers' IRA accounts "rolls over" into one account. This way, you can avoid paying taxes and withdrawal penalties. You will also be able to continue building your retirement savings tax-free or tax deferred. Before deciding whether to retain assets in a 401(k) or roll over to an IRA, an investor should consider various factors including, but not limited to, investment options, fees and expenses, services, withdrawal penalties, protection from creditors and legal judgments, required minimum distributions and possession of employer stock. Please view the Investor Alerts section of the FINRA website for additional information.
Take Advantage of Your Employer Matching
If your employer offers 401(k) matching, consider taking full advantage of that benefit. 401(k) matching is where your employer matches a percentage of your salary based on how much you contribute to your own 401(k). If you are not enrolled in this benefit, you are saying no to free retirement money. If you can, aim to meet your employer's matching limit to maximize your retirement savings.
Buy Income-Producing Assets
Investing in income-producing assets, such as equity stakes in profitable businesses, can be helpful in boosting your retirement savings. If you can get the right stock at the right price, you can receive appreciation in your equity and dividends. Investing in stocks may not be a short-term process. Allowing time for potential growth can. be a key to retirement savings.
Retiring rich is everyone's dream. After a long career, everyone wants the opportunity to relax and not have to think about money. Talking to a financial advisor can help you increase your retirement savings with detailed advisor for your portfolio. Contact us today to set up a no-obligation consultation by calling 713-888-0841 or via email at info@retirewithmcm.com
Sources:
Kennon, Joshua. "How to Make Money by Creating Passive Income." The Balance, The Balance, 30 Nov. 2021, https://www.thebalance.com/six-steps-that-can-help-you-retire-rich-358013.
"Saving Money." The Balance, https://www.thebalance.com/wealthy-happy-retirement-1289908.