By Brenda W Hargroves
Let me start off by confessing – I am not a professional financial advisor. What you are about to read is strictly based on my opinion and personal experiences.
My saving for retirement mantra is simple: Time, consistency and annual compound interest are your best friends. One of the smartest things you can do is start investing for retirement at an early age, stick to your commitment and place your investment in a long-term interest-bearing account. I’ll share the example I always used when I taught financial literacy. At age 20 you commit to save $25 for retirement a month in an account that pays 1% compound interest. By age 65, you will have accumulated $13,700 in retirement savings. If you started with $100 a month you will have $68,600.
By the way, for those of you who don’t know, this is how compound interest works. You deposit a principal amount in a saving account. You receive interest on the principal each year, as well as interest on the interest you’ve accumulated. Over time, your funds will grow substantially.
Now, on to retirement saving tools.
Nickels, Dimes and Quarters – The easiest way to start accumulating funds is to save your change. Fill those jars or piggy banks, then move your coins to a savings account. As the amount of your savings grows, transfer funds into vehicles with higher interest rates or increased benefits.
Traditional IRA (Individual Investment Account) – Take advantage of an IRA or pension if your job offers this benefit. Even if your employer does not match a percentage of the funds you invest, you are still saving. And, in many cases, IRA saving strategies are flexible. You can invest in stocks, options, or switch to a Roth IRA.
Roth IRA (Individual Retirement Account) – With a Traditional IRA, you get an immediate tax write-off, but have to pay taxes when you withdraw the money. In my opinion, you are better off investing in a Roth IRA and paying the associated taxes as you go along. Upon meeting certain conditions, your money is tax free when you withdraw it from your account. Pay now to play later.
Annuities – I believe in investing in annuities that have minimal fees and offer a guaranteed lifetime income benefit. I suggest discussing annuities with your financial advisor.
Stocks – In general, you can afford to invest in speculative stock picks when you are young. As you age, you may want to consider more conservative choices or stocks that offer consistent dividends. Always do your research when investing in stocks, determine what you are willing to lose, review your portfolio regularly and make changes accordingly. I’d suggest investing in companies you know and trust.
Windfalls – This is the easiest way to save for retirement. If you received unexpected income, sock it all away for retirement. You weren’t expecting it so act like it is not readily available. If possible, consider all or a portion of your income tax refund a windfall. Think of the IRS as a short-term saving vehicle since the government doesn’t pay interest.
Along with maximizing the investment tools mentioned above, I offer the following tips:
1) Keep your credit card debt to a minimum. Better yet, try to minimize all debt with the intention to become and remain debt-free. All the money you pay in interest charges is money you could be saving.
2) It is easier to pay taxes when you have regular income, so whenever possible, pre-pay your tax liability.
3) Keep reading, learning about and sharing ways to save. Doing these things will enhance your ability to live your best life in retirement.
Do you have a retirement tip to share? If so, please enter your suggestion in the comment section.
コメント