Retirement is something that you should plan for from the first day of your professional life. People who defer their retirement savings are likely to end up at a tight spot financially later in life. On the other hand, saving from an earlier stage in life will ease your pressure later in it.
Let us go through a set of steps that you can follow in order to successfully sum up a good amount of retirement savings.
The reason why this is important is that if you start saving early in your life, it will allow you to put aside a smaller portion of money from your paycheck as opposed to the portion you would have to separate if you start saving at a later stage. Furthermore, it will also get you in a habit of saving money from the very beginning of your professional career.
Know When to Retire
Although it is hard to figure out when you will actually retire, but having an approximate age in mind will help you greatly with the savings. Even if you miss a few months of savings somewhere in the middle, you would know how much you need to get back on track in order to get to the amount you want in your account at retirement.
The Annual Budget
You should calculate what your annual budget will be at the time of retirement. This will help you analyze how much you need to save to get a point where you can support that annual budget at retirement. Bear in mind that this annual budget will be fairly lesser than your annual budget at the moment because you are likely to have ended up with nearly all of your major life responsibilities by then.
Break the Savings Down
Break down the annual savings you require into monthly portions to get an exact number you have to separate from your monthly paycheck. An advice here is not to calculate any gains from the investments you make with your saved up amount. Consider these gains as a bonus which can also give you a cushion in case you skip a few months of savings. In addition to that, these gains will give you a greater amount than expected at the retirement.
Make the Most of Your Situation
In case you are self employed, you may register in the IRA scheme to defer taxes on your savings. An employee on the other hand has an extra benefit by enrolling in a 401-k program. By enrolling in it, your employer will also contribute a certain amount to your savings which are deferred of any taxes.
Furthermore, if you are an employee, you may also enroll in both the 401-k and the IRA simultaneously. These programs give you the opportunity to invest your savings without any taxes involved. The only time you pay taxes is at retirement when you withdraw the saved amount – since you will most likely be in a lower tax bracket then, the taxed amount will also be fairly lower than what you might pay if you don’t enroll in either of these programs.