As we mentioned previously, to live comfortably during your retirement years you can no longer rely solely on your company pension plan or Social Security to fund your retirement. Instead, you will have to implement other saving and investing strategies.
As you approach your retirement planning objectives, here are some quick points that you should consider:
- Start as early as you can and save as much as you can. While it is never too late to start saving, history has shown that this race belongs to those who start early. To reap the true power of compounding, you must start early.
- Based upon your current lifestyle and how you intend to live during retirement, set realistic goals.
- Though it's never too late to start, the sooner you begin saving the more time your money has to grow. Gains each year build on the prior year's - that's the power of compounding and the best way to accumulate wealth. If you currently require $55,000 annually to live how you live now, after adjusting for inflation based upon when you retire, you will need more than $55,000 then.
- Participate in your company's 401(k) plan as soon as possible, especially if they offer any form of matching contribution. Because the 401(k) gives you an immediate tax deduction, your money grows tax-deferred.
- After you have exhausted your 401(k) options, contribute to an IRA. You have two types to consider: a traditional IRA, which offers tax-deferred growth, and a Roth IRA, which does not allow for deductible contributions but offers tax-free growth. With both options, you do not pay taxes until you make withdrawals.
- Consider relocating to an area with lower living expenses. Moving to warmer regions can reduce annually energy usage among other things.
- Don't write off taking a part-time job doing something you love during your retirement years. This also keeps you socially engaged and reduces your dependency on your nest egg.
Once you have retired, you can stretch your savings by making withdrawals from your taxable accounts first, which allows your other accounts to compound longer.