Retiring comfortably can mean something different for everyone. This is why there is no clear answer to how much you will need to retire. It’s never too early to start saving for retirement. Making sure you have developed a strategy early for your retirement is important to make sure your journey runs smoothly and reduces your stress.
Where do I start?
The first thing you need to decide is what you want your retirement lifestyle to consist of. Decide how much money you will need each month and when you want to retire. The next step will be to use a retirement calculator. Find out how much money you should start saving each month to be able to live comfortably during your retirement.
Starting to save the money is often the most difficult part of preparing for retirement. It’s hard to start cutting down on your monthly spending to put away money that you won’t see for a while.
Get to know your retirement savings options to choose what will work the best for you:
An annuity is when you make payments to an insurer who will then provide payments back to you once you have reached retirement age. This helps by offering you a guaranteed income stream and protecting you from the risk of not having enough money later on in your retirement.
- IRAs (Individual Retirement Accounts)
Traditional IRAs and Roth IRAs are the two most commonly used:
- Traditional IRA
- Traditional IRAs are tax-deferred, which means that as long as the money stays in your account, it will not be taxed. When you end up taking the money out of the account, you will owe tax on the money at your current rate.
- Roth IRA
- Roth IRAs are made with your after-tax income. This means that your earnings will be tax free and withdrawals will be tax free if your account has been open for at least 5 years. With this type of IRA, you will also be able to add money for as long as you earn income.
- Traditional IRA
401(k)s are often offered by employers to help with your retirement savings. With these accounts, a small portion of your paycheck is automatically taken out. Your employer might also give their own contribution to your account, often matching your contribution up to a certain amount.
What Retirement Expenses Should I Expect?
- Monthly Bills
Most of what you pay each month will be expenses that you will continue to pay monthly even in your retirement.
If your retirement savings account is tax-deferred, you will be paying taxes on the money you take out of it.
With rising costs, goods and services will more than likely cost more later in your life than they do right now.
- Health Care
Plan for healthcare costs, expected and unexpected.
Start planning for your retirement as early as you can so that you can live comfortably in your old age and spend time and money on what matters the most to you.
Consult your tax advisor