Saving for Retirement Strategies

By | May 14, 2013

For some retirement is just around the corner, for others it is so far away that it seems like it will never happen. But getting started planning for retirement is never too early. Taking these steps even if you wished you would have started earlier in life is are still important. It is never too early to start planning financially for when you hang up your hat.

The biggest most effective thing you can do in planning for retirement is to start putting money away and take advantage of compounding interest. There are however a few different ways in which you can take advantage of this. Start by seeing what you have with regards to money in the bank or what amount you can incorporate into your budget. Often a rule of thumb many people follow is to put aside 10% of your income towards your retirement. If you can afford more, than great, if not than do what you can.

Once you have figured this amount out, one of the best ways is to put your money into a 401K account. The money you contribute is tax deductible until you retire and start removing it. What also is important to check out is there are often situations at certain jobs etc where the employer will match contributions upto a certain amount. If the company you work for is willing to give you free money, do your very best to get as much of it as you can.

Another option is putting money into a Roth IRA. The money put into one of these accounts is not tax deductable however future gains are not taxed either. Some people prefer one method over the other but generally I like to top up on my 401K and if I have extra put it in my Roth IRA. If you are currently in a high tax bracket and anticipate to be in a lower one in the future, it is often recommended to top up your 401K first. If the other is true, then perhaps the Roth IRA is more inviting.

If you have many years, at least 15 in my opinion, and you are comfortable with it, I would recommend investing in equities. The reason being is that while there can be bigger swings in the prices, over time equities have out performed bonds or other traditional investments. See here for a older chart image showing over time how equities have compared to other forms of investments like bonds and balanced portfolios, treasury bills etc.  The top line are equities. I say “if you are comfortable” since some people are just generally not comfortable seeing their portfolio making great gains but then possibly seeing it dive in a short time. Finding a balanced portfolio with a combination of stocks and bonds may suit you better if you find you don’t want to stomach the ups and downs. Or if you really are uncomfortable, investments like bonds provide an even smoother course. Whatever your situation get started now if you have not already!