We all want to ensure a stable financial future. Use these 7 tips to maximize your retirement … [+]
Retirement is one of the biggest and most common goals that many people have. After all, your retirement savings determine how comfortably you’ll live and whether your money will, in fact, outlive you.
Making the most of your retirement savings is essential if you want to build a nest egg that will withstand the risks of inflation, market turmoil and your unexpected longevity. If you’re looking for ways to ensure that your money goes further, here are some tips for maximizing your retirement savings.
1. Start today
The best piece of retirement investment advice is to start today. The longer your money has to grow, the more you’ll get out of compounding returns. Even if you can’t set aside a lot of money immediately, any amount you invest today will have the chance to compound. Over time, even a small start can make a difference.
Begin today with as much as you can, and then increase your retirement account contributions as your finances improve. The longer your money has to grow, the bigger your nest egg will be.
2. Automate your contributions
It’s not just about adding to your accounts on occasion. Consistency is a big part of growing a nest egg designed to see you through your entire retirement. One way to make sure you’re investing consistently is to automate your contributions.
The easiest way to automate is to have money taking from your paycheck automatically each month. If that’s not an option, set up an automatic transfer, or set up an automatic investing plan through your broker. That way, you prepare for retirement without having to think about it.
3. Use your employer match
Do you work for a company that offers an employer match? If so, that’s free money designed to build your retirement account. At the very least, sign up to contribute the minimum amount needed to get the maximum match from your employer. The money will come out of your paycheck and grow in a tax-efficient manner. Don’t leave that money sitting on the table when it could be growing your nest egg.
4. Use an IRA
At some point, you might max out your company’s 401(k) contributions. When that happens, it can make sense to open an IRA. Even if you don’t max out your company’s 401(k), it still might be a good idea to use an IRA.
Depending on your situation, an IRA might offer you a greater variety of low-cost investment options. On top of that, if your company doesn’t offer a Roth 401(k) option, and you have decided a Roth is your best option, opening a Roth IRA might help you maximize your ability to enjoy tax-free earnings down the road.
Consult with an experienced financial professional to see if it makes sense to use an IRA in addition to a 401(k).
5. Add catch-up contributions to your account
For those who are at least 50, it’s possible to contribute more money to a tax-advantaged retirement account. Being able to put more money into a 401(k) or IRA can make a big difference, especially as you approach retirement. If you have the additional ability to put more aside in your retirement account, do what you can to use the catch-up contributions to your advantage.
6. Consider taxable investment accounts in your strategy
As you maximize your retirement savings, don’t forget about taxable retirement accounts.
First of all, if you have reached the contribution limits for your tax-advantaged accounts and still want to grow your wealth, a taxable account can be one way to keep using compounding returns to increase your nest egg.
Other investors may see a benefit from using a taxable account, even if they haven’t maxed out their tax-advantaged accounts. If you plan to retire early, there’s a good chance you won’t be able to access a 401(k) or IRA without penalty. A taxable retirement account can provide you with additional options.
Finally, depending on your situation, a taxable account can help you with certain investments. For example, it might make more sense to hold municipal bonds in a taxable account than to put them in a traditional IRA. Speaking with a knowledgeable professional can help you figure out the best path.
7. Start planning when you’ll withdraw money from your nest egg
Don’t forget that part of retirement planning and maximizing your savings is understanding how to make the money last when you start taking withdrawals. You’ll need to figure out which accounts to roll over, which to start taking from first and how it all works with Social Security.
On top of that, it’s important to realize that, due to increased longevity, there’s a good chance that you’ll need to keep some of your assets in growth investments, even during retirement. Setting up a bucket strategy can help you access your cash, while still leaving room for growth.
Maximizing your retirement savings is about viewing your retirement holistically from the begin. The earlier you start, and the more consistent your planning, the more likely you are to build lasting wealth.