You're Smart to Start Early
Even if you’re just learning about your retirement savings options, you’re a step ahead of the pack. And, if you’ve already started saving, then that's even better. The impact of compounding is greater the earlier you start saving. You'll earn not only from the money you invest but also from previous earnings. Not to mention, the sooner you work savings into your budget, the easier it will be to live within your means and prioritize savings in the future.
No matter how little, contribute what you can to your selected plan. Any time you see an increase in salary, receive a bonus or pay off a debt, consider increasing your contribution. Delaying saving until you have more money to contribute could mean less funds in the future, as your investment won't have as much time to earn compounding interest.
Deciding How Much to Contribute
Several types of retirement accounts are available. They vary based on factors like tax advantages and filing status, income requirements and limits, and age limits for contributions and withdrawals. The main difference between them is when you pay income taxes on your contributions.
Another important difference is the amount that you can contribute every year. Traditional IRAs, for example, allow a maximum contribution of $6,000 for an individual whose tax status is "single" and under the age of 50. Roth 401(k) plans, on the other hand, allow a single tax filer to contribute up to $19,500 annually. Use the calculator below to explore the maximum amount that you can contribute to your retirement accounts.
You have until Tax Day of the next year to make contributions for the current year. For example, for 2020 IRA contributions, you could contribute anytime during 2020 and up until the tax deadline of May 17, 2021.
Starting to plan for retirement? Smart move! The earlier you start saving, the more time your money has to grow. Use the checklist below to help you get started.
Manage Your Budget
Get financially fit. Pay off debt, cut unnecessary expenses, create a budget and stick to it.
Make saving a priority. Compare your income to expenses, so you'll know how much you can save. Start saving every month.
Pocket windfalls. If you get a tax refund, inheritance, or insurance settlement, or even win the lottery, set aside most of the money toward retirement and other savings goals.
Set a short-term target. Decide now how much you can put aside for retirement each month. Up your retirement contribution each time you get a raise or your financial situation improves.
Set a long-term target. How much you need in your retirement nest egg will largely depend on individual factors, such as your desired lifestyle, how many years you hope to be retired and overall health.
Set interim goals. Decide how much you want to save by the time you’re 30, 40, 50 and 55. Track how much closer you’re getting to those goals and adjust your savings as necessary.
Use available opportunities, such as employer-sponsored plans and IRAs. While specific accounts vary depending on your employer, your options may include 401(k), 403(b), and 457 plans, or thrift savings plans (TSPs).
Maximize free money. Take advantage of any matching retirement contributions your employer offers, and make sure you're contributing enough to get the full match.
Increase your contributions. Increase your retirement contributions as your pay increases. Consider bumping up your contributions by 1 percent or more each year. Use any raises you receive as opportunities to increase your retirement savings.If you need a push to get going, then a professional can help you estimate how much you need to save to reach your retirement goals and can assist you in choosing appropriate investment vehicles and strategies to meet them.
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