Saving for retirement is something people under 40 rarely think about. However, it is something very important to start early. In fact, finance professionals recommend people begin to start thinking about it in their twenties. Retirement savings are your sole tool for future financial security. Retirement accounts, like individual retirement arrangements (IRAs), are specialized to compound on your savings on the long term, as in decades. It’s very difficult to predict what the markets will be like in a decade or two from now. Meaning, saving money is crucial for survival. Here are several important tips you should know about saving for retirement:
Start as Early as Possible
Investments become valuable as they mature. If you start saving for retirement in your late forties, you won’t have that much by the time you retire in your sixties. However, if you start saving in your twenties or thirties, your retirement funds would have had more than a decade to mature. The compounding effect is quite powerful, even if your savings have an extremely conservative rate of return like six percent. So, don’t wait around to start your retirement savings account.
Contribute Pre-Tax Money to a Traditional 401(k)
Get a traditional 401(k) from your employer. The money you contribute will not be subject to income tax. That means you will only have to pay taxes out of your take home pay, which will leave you more for investing. Roth 401(k)s are appealing to some because having one will mean your retirement years will be tax-free. But keep in mind that Roth 401(k)s are subject to many conditions, and you have to be in a certain high tax bracket to enjoy all the benefits. On the other hand, when you have more to invest with a traditional IRA, you will have more to spend in your retirement years.
Plan for a Self-Directed IRA
After you have opened an IRA account, you will have the option to convert it into a self-directed IRA. The advantage here is that you will be able to diversify your investments into stocks, real estate, and importantly, precious metals. If you want to add gold to your IRA, you will need a self-directed IRA. Precious metals like gold can hedge your cash assets against future financial uncertainty. It’s recommended that the overall risk of your retirement savings are lowered with a precious metal. You will first need to appoint a trustee to your self-directed IRA, and then contact a reputable gold dealer like Lear Capital to acquire the metal.
Make More by Matching Employer Contribution
Matching your employer’s contribution will practically earn you free money for retirement investing. Say your employer matches 50 percent of your contribution up to 5 percent of your monthly salary. For an employee earning $50,000 annually, that gets about $1,250 from the employers’ side, if the employee contributed $2,500. This is really an impressive amount. So do your best to match your employer’s contributions.
And don’t forget to automate your savings as well. Instead of spending and saving each month, save first and spend later. Otherwise, you will be tempted to squander away the money you should be saving to ensure your future financial security.