Easy Ways to Save Money for Retirement
Saving money for retirement often feels like an impossible task to many, especially when it seems like so many live from paycheck to paycheck. Nonetheless, saving for retirement is possible, and chances are good that you will not even miss the little bit of money coming out of your paycheck.
#1 – Sign Up for a 401k Account
A 401k account is by far one of the best and easiest ways to put money away for your retirement. If your employer offers it, all you have to do is fill out a form and determine how much money you would like to deduct from your paycheck each week. You can choose a flat dollar amount or a percentage of your earnings, and the best part is that your employer will often match your contribution up to a certain amount of money or percentage. For example, you may opt to contribute 6% of your earnings each week, but your employer may only match you up to 5%. Either way, it adds up over time and provides you with an excellent way to save.
#2 – Open an IRA (Individual Retirement Account)
Although you can always just open a savings account and start making deposits, IRAs are better than traditional savings accounts in a number of ways. If you are not yet 50 years of age, you can contribute up to $5,500 into your IRA; those over age 50 can contribute more. IRAs give you tax advantages that traditional savings accounts do not, so you will need to be sure that you understand the differences between traditional and Roth IRAs since each one comes with a different tax treatment for your contributions and withdrawals.
#3 – Keep an Eye on Your Social Security Benefits
One of the biggest mistakes you can make involves assuming that your Social Security benefits will cover all of your post-retirement needs. The average American only brings in between $12,000 and $15,000 per year via Social Security after they retire, and that is well below the poverty line. Although Social Security is a great starting place, it will not allow you to retire comfortable if you do not supplement it. The Social Security Administration’s website can help you determine your estimated benefits at various ages with its retirement estimator tool.
#4 – Never Touch Your Retirement Savings
While IRAs and 401k accounts provide an excellent way to earn interest on the money you contribute over time, you might feel tempted to take a little money here and there to help you cover emergency expenses. Don’t. Withdrawing early from an IRA or 401k account has some pretty steep penalties, and in some cases, you may even get hit twice – once when you withdraw, and again come tax season. Save money in a traditional savings account to cover emergency expenses. Most experts recommend keeping an amount equal to at least three months’ of your household’s income in savings.
Saving money for retirement does not have to be a difficult or painful task. In fact, in most cases, you can have your contributions withdrawn from your paycheck before they are taxed. For now, you might not even know it is missing – but in 35 years, it adds up and provides you with a comfortable nest egg.